Market Weakness Could Continue

Key blue chips drifted lower for four consecutive trading days post the religious Hari Raya Haji holiday last Monday, as persistent profit-taking pressured the local blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) to end at session lows. Telco, utility and energy heavyweights led falls to drag the index below the 1,600 level.

Week-on-week, the FBM KLCI lost another 16.95 points or 1.05 percent, to 1,590.37, as gains in TM (+19sen), AMBank (+11sen) and QL Resources (+15sen) were offset by falls on Axiata (-18sen), YTL Power (-20sen), Maxis (-11sen), CelcomDigi (-11sen) and Tenaga (- 36sen). Average daily traded volume last week declined to 5.59 billion shares as compared to 6.41 billion shares the previous week, but average daily traded value steadied at RM4.42 billion, against the RM4.39 billion average the previous week.

In the absence of catalysts, market weakness could continue this week after the benchmark index fell for four consecutive days last week post Hari Raya Haji holiday on Monday. News that Malaysia fell seven places to 34th position among 67 countries in the latest International Institute for Management Development (IMD) World Competitiveness Ranking was a key dampener last week. The fact that Malaysia lost four spots to end up 10th out of 14th countries in the Asia-Pacific region, and placed even below Indonesia and Thailand for the first time did not go well with the investors. Besides, market was also looking for an excuse to take profit after the sharp rally this year with foreigners taking the opportunity to offload. As for stock picks this week, any further weakness on defensive gaming, telcos, energy and technology related counters should attract bargain hunters looking for recovery play ahead.

Economic data wise, Malaysia’s May consumer price index this week is not expected to deviate much from April’s 1.8% due to stagnant growth in transportation costs. Consensus forecast is for an 1.9% increase. Consequently, we anticipate an increase in the CPI from June onwards, in-line with the removal in diesel subsidies and demand-side pressure on better economic growth prospects. With the increase in diesel prices to RM3.35 per litre, transport costs may rise by approximately 12%, with an overall CPI increase of 3.4% in June. Notwithstanding adjustments in RON95 price, the average CPI for 2024 could rise to 3.3% YoY. Meanwhile, the Malaysian economy outperformed in 1Q24 with a growth of 4.2% and we are projecting a growth rate of 5.5% in 2Q24.

Externally, the third reading of the US 1Q24 GDP and core personal consumption index could be in focus this week as investors look for clues that will influence the US Federal Reserve in its policy decision. The advance and second estimate of GDP of 1.6% and 1.3% underperformed expectations of 2.5% and 1.6%, respectively and the final reading is expected to show an annualised growth of 1.5% versus 3.4% in 4Q23. Core PCE on the other hand is expected to cool slightly to 2.6% YoY versus 2.8% YoY in April, according to the Bloomberg estimates. In China, it is due to announce the industrial profits for May this Wednesday. A slower growth compared to 4.3% each in March and April will dampen market sentiment as it will raise doubts about the strength of China’s economic recovery amid prevailing views that the government should introduce more aggressive measures to address weak external and domestic demand, deflation risks, and a property sector downturn.

Source: TA Research - 24 Jun 2024