Further Catalysts Needed to Sustain Uptrend

The local blue-chip benchmark index climbed for a fifth straight session to chart a 17-month high last Friday, with healthcare, construction and oil & gas heavyweights leading gains as rotational and infrastructure plays highlighted trade. The utility, construction and property sectors were the top gainers last week, given the optimism over infrastructure plays, while the oversold rebound and light bargain hunting interest on small cap stocks reversed some of the heavy losses suffered from the recent limit-down falls.

Week-on-week, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) rose 19.91 points, or 1.34 percent, to 1,506.28, as gains on CIMB (+17sen), YTL Corp +27sen), YTL Power (+36sen) and Maybank (+11sen) overcame falls on Sime Darby Plantations (- 10sen) and Petronas Chemicals (-8sen). Average daily traded volume last week was lower at

4.8 billion shares, compared to 5.51 billion shares the previous week, while average daily traded value eased to RM3.19 billion, against the RM3.24 billion average the previous week.

Unexpected fast recovery in lower liners that were hit by limit downs in their share prices the previous week, strong buying interest from foreigners, and China’s surprise 50 basis points cut in the reserve requirement ratio effective 5th February and indications that will engage more tools to revive economic growth, if necessary, contributed to the better market sentiment and lifted the benchmark FBM KLCI last week. With prospects of Bank of China and the Chinese government taking more concrete actions to broaden and deepen consumption this year increasing and the likelihood of the US skirting a recession due to the strong labour market and a likely monetary easing, probably in May or June, optimism about the positive implications on Malaysia is also on the rise. These expectations along with domestic developments in Malaysia could sustain the positive local market sentiment while investors await fresh catalysts to prop up the market further.

In China, its Purchasing Managers’ Indices (PMI) for January this Wednesday could shed some light about the domestic and external demand after last week’s data showed its industrial profits rose 16.8% year-on-year (YoY) in December, down from a 29.5% increase in November, but extended gains for a fifth month that led to a lower contraction of 2.3% for the full year. Looking ahead, the PMI and industrial profit numbers are expected to improve with better demand and restocking activities. That aside, the Global PMI data this Thursday should also provide some insight on the impact of Red Sea shipping disruptions to manufacturing supply chains and prices.

As for the US, focus this week will be on the Federal Reserve’s guidance in the two-day meeting that will end on Wednesday and the labour data on Friday. This is after the stronger than expected annualised 4Q23 GDP of 3.3% and softer than expected December core personal expenditure of 2.9% YoY versus forecast 3.0% YoY provided more flexibility for the central bank to decide on the timing of interest rate cut. Market expectations for a rate cut has shifted recently from March to May, but a sustained strength in the nonfarm payrolls data and an increase in input costs due to shipping delays in the Red Sea could affect the Fed pivot expectations, if current conditions persist.

Domestically, no major economic data is due this week apart from the S&P Global Malaysia Manufacturing PMI for January, which is expected to remain below the 50 thresholds but could improve slightly versus the 47.9 recorded in the previous month due to improved demand and production. That aside, the ascension of Sultan of Johor as the 17th Yang DiPertuan Agong of Malaysia this Wednesday is seen in a positive light to render political stability until the current parliament expires in December 2027, besides attracting sizeable investments from Singapore and China.

Source: TA Research - 29 Jan 2024