Profit-Taking Consolidation Needed to Neutralise Overbought Momentum

The local blue-chip benchmark climbed to a fresh 21-month high last Tuesday, fuelled by strong gains in oil & gas, utility and plantation heavyweights, on foreign-led buying after the local currency fell sharply to approach USD4.80, the weakest since the Asian financial crisis. While more investors returned from the Chinese New Year holidays to bargain hunt, market undertone remained cautious given the weak ringgit, and pending fresh domestic catalysts to prop up sentiment and offset caution from recent weakness in the local currency.

Week-on-week, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) added 15.56 points, or 1.01 percent, to 1,549.11, as gains on YTL Corp (+29sen), Public Bank (+7sen), Maybank (+10sen), Sime Darby (+19sen) and YTL Power International (+20sen) offset falls on MISC (-15sen) and Sime Darby Plantations (-7sen). Average daily traded volume last week recovered to 3.72 billion shares, compared to 3.06 billion shares the previous week, while average daily traded value climbed to RM2.70 billion, against the RM2.15 billion average the previous week.

Net foreign buying of RM2.1bn worth of shares year-to-date, driven by the weak Ringgit, undemanding valuation, steady economic growth and stabilising domestic politics, has contributed to the strong recovery in the FBMKLCI so far. To sustain it and improve further the government must display strong resolve to implement various growth measures, and socioeconomic and political reforms without losing sight in tackling its fiscal deficit and rising debt. As such, investors would be interested to know more about the impending meeting on the Johor-Singapore Special Economic Zone this Wednesday, which will be chaired by the prime minister, before both countries meet in March for further discussions.

Among the initiatives highlighted earlier in January were the implementation of a passportfree QR code clearance system on both sides, adopting digitised processes for cargo clearance at the land checkpoints, co-organising investor forums, setting up a one-stop business and investment hub in Johor, and curating training and work-based learning initiatives. Besides, investors will be keenly watching for more clues on the KL-Singapore High Speed Rail project that is estimated to cost RM100bn that will exert more strains on government finance, if not fully funded by the private sector. Then again, it is almost impossible for the private to pick up the baton without government funding, guarantees and assistance in land acquisition. That aside, investors also will be eager to listen to the new King’s first speech in parliament today, which may touch on many aspects of nation building that include developments, socioeconomic issues and reforms, as the august House meets between Feb 26 and March 27. Berjaya Land, IJM Construction and MRCB that had formed a consortium with Keretapi Tanah Melayu to submit a bid for the HSR, apart from six other consortiums, may witness some movement in their share prices.

Apart from that, most of the FBMKLCI 30 component stocks will be announcing their fourth quarter 2023 results this week as the reporting season enters its final leg this week. The outcome is expected to allude to a favourable stronger double-digit earnings growth in 2024 as opposed to a weak single digit expansion in 2023, in line with the recent muted 3.0% YoY expansion in 4Q23 GDP and a stronger outlook this year.

Externally, the United States’ second reading of its 4Q23 GDP and core personal consumption expenditure for January this week will be closely monitored to gauge the Federal Reserve’s next action while China’s Purchasing Managers’ Index (PMI) for February provide more clues on business conditions and economic activities. Malaysia’s S&P Global Malaysia PMI Manufacturing for this month is also due this week. A favourable reading above the expansion and contraction threshold of 50 should be viewed positively after signs of improvement in demand emerged in January with a reading of 49.0, up from 47.9 in December and the highest since September 2022.

Source: TA Research - 26 Feb 2024