Healthy Profit Taking Consolidations Ahead of CNY Holidays

The local blue-chip benchmark index managed to rise to another fresh 17-month high last week, before pausing for profit-taking breather as overbought momentum capped upside. Market sentiment also turned cautious following the liquidation of a top China property developer, with more investors staying by the sidelines as the market digest the outcome of the US central bank’s first monetary policy meeting of the year.

Week-on-week, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) added 10.3 points, or 0.68 percent, to 1,516.58, as gains on Maybank (+20sen), Tenaga (+32sen), Public Bank (+6sen), Axiata (+11sen) and Sime Darby Plantations (+14sen) offset falls on YTL Corp (-21sen) and Press Metals Holdings Berhad (-11sen). Average daily traded volume last week declined further to 3.85 billion shares, compared to 4.8 billion shares the previous week, while average daily traded value eased to RM2.87 billion, against the RM3.19 billion average the previous week.

Profit taking consolidations are expected to increase ahead of the festive holidays this weekend as investors look for more drivers that could sustain the revival in the FBMKLCI. We need stronger domestic catalysts to prop up the domestic equity market as the likelihood of rate cuts in the US contributing to a stronger Ringgit, which is seen as an important driver to woo back foreign investors, is being delayed. Ringgit closed at RM4.7285 against the USD last Friday versus RM4.5995 last year-end. This could keep exporters such as Technology ((INARI, Buy, TP:RM3.55), (MPI, Buy, TP:RM32.35) and (CORAZA, Buy, TP:RM0.60)) and Gloves ((HARTA, Buy, TP:RM3.05) and (SUPERMX, Buy, TP:RM1.10)) in the limelight this week, while investors keep tabs on the domestic Industrial Production Index (IPI), and Caixin China PMI Composite and Services data apart from China’s Consumer Price Index (CPI) and Producer Price Index (PPI).

The still strong US labour data for January and falling core personal consumption expenditure painted a robust outlook for the US economy despite prevailing expectations for a soft landing or even a recession in a worst-case scenario. The latest nonfarm payroll data last Friday revealed that the economy added 353,000 jobs, much stronger than expected 185,000 in Bloomberg forecast, while the average hourly earnings rose 4.5% yearon-year (YoY), higher than December’s 4.3% YoY, and the unemployment rate held steady at 3.7%. As the wage growth is running ahead of the 3.0% to 3.5% range that the most policymakers view as consistent with the US Federal Reserve’s (Fed) 2% inflation target, the likelihood for a cut in March or even in May meeting appears remote, if the labour market continues to exhibit persistent strength in the coming months. This is consistent with the US Federal Reserve’s assertion last week that a rate cut in the March meeting is unlikely and it would continue to parse incoming data for more evidence that inflation is easing towards its target before cutting rates.

According to Bloomberg forecast, Malaysia’s IPI is expected to expand at a moderate pace of 0.3% YoY in December, after it decelerated to 0.6% YoY in November from 2.4% YoY a month earlier. The IPI has sustained a moderate expansion of 1.0% YoY in the first eleven months of last year with a notable growth of 2.3% YoY in the electricity index while the manufacturing and mining indices grew at a slower pace of 0.9% YoY and 0.6% YoY, respectively. As external trade has impact on IPI, the focus will be on China’s deflationary pressure as well as the January CPI and PPI data this Thursday should provide important clues on domestic demand, economic growth prospects and the likely policy support from the Chinese government and the central bank to revive the economy amid weak consumption and consumer confidence.

Source: TA Research - 5 Feb 2024