Mid-week profit-taking in key plantation, telco and consumer heavyweights dragged down the local benchmark blue-chip index for double-digit losses, before subsequent bargain hunting interest supported a rebound. Despite weaker regional market tone, which was dragged by hotter-than-expected US inflation data, late buying in property, utility, telco and transport heavyweights managed to lift the blue-chip index up to close on a firm note ahead of the weekend.

For the week, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) rose

12.97 points, or 0.84 percent, to 1,552.83, as gains in Maybank (+27sen), TM (+66sen), CIMB (+21sen), Tenaga (+32sen) and Public Bank (+8sen) overcame falls on Nestle (- RM2.60) and Petronas Dagangan (-51sen). Average daily traded volume last week recovered to 4.19 billion shares, compared to 3.47 billion shares the previous week, while average daily traded value rose to RM3.19 billion, against the RM2.67 billion average the previous week.

Buying support from local funds lifted the benchmark index last week while sustained foreign selling since the last week of February has drained out the net inflows for the year. A resilient US labour market, and unexpected increases in the US inflation and producer price index continued to affect market sentiment as these economic data strengthened the narrative that the US Federal Reserve (Fed) is unlikely to cut interest rate anytime soon and the eventual timing could be delayed. After a stronger than expected headline and core consumer price index of 3.2% and 3.8%, respectively for February, the factory gate prices for the month also expanded at a much stronger pace of 1.6% YoY versus forecast 1.1% and January’s 1.0%. The highest increase in six months in this leading indicator was driven by higher fuel and food costs.

Thus, investors will be on the lookout for more clues in this week’s Fed meeting on Tuesday and Wednesday to gauge the timing of its first interest rate cut in this tightening cycle. In this meeting, the central bank will also provide updates on interest rate, economic growth, inflation and unemployment. According to the CME FedWatch Tool, the Fed could start loosening in June or July with three or four quarter-point rate cuts this year, which is consistent with the policy makers’ earlier guidance for three cuts.

Locally, Malaysia’s trade data for February that will be released today will be followed closely after exports surged by 8.7% YoY January after going through a year-on-year contraction for ten consecutive months between March and December. Consensus forecast is showing an

1.9% and a 7.2% growth in exports and imports, respectively, which will lead to a surplus of RM13.1bn versus RM10.1bn in January. Judging from improving regional trades and imports of intermediate and capital goods that surged by 21.4% YoY and 41.8% YoY, respectively in January, we do not expect the outcome of February trade data to disappoint. The improvement in the seasonally-adjusted S&P Global Malaysia Manufacturing Purchasing Managers' Index, which rose to 49.0 in January 2024 from 47.9 in December, also alludes to this possibility.

Continued improvement in trade data, better outlook for ocean freight rates following the Red Sea crisis, and a pickup in foreign direct investments should work in favour of shipping liners and freight forwarders. The pickup in FDI is consistent with the “China Plus One” strategy adopted by most manufacturers. Preferred picks under our coverage within the transportation sector are CJCEN (TP:RM0.50) and WPRTS (TP:RM4.26). Sustained recovery in exports should augur well technology /semiconductor players (CORAZA (TP:RM0.60), INARI (TP:RM3.55) and MPI (TP:RM32.35)) given Malaysia‘s number six position in the global semiconductor supply chain and its strong contribution to Malaysia’s economy. Undervalued blue chips (CIMB (TP:RM7.50), HLBANK (TP:RM23.30), PETGAS (TP:RM20.60), TENAGA (TP:RM12.40), YTLPOWR (TP:RM4.48) and MISC (TP:RM8.30)) are expected to be on investors radar as well this week.

Source: TA Research - 18 Mar 2024