• FBM KLCI Average Return of 3.3% for 2H for Past 34 Years
• FBM KLCI Average Gain Ratio at 0.59% in 2H for Past 34 Years
• Worse/Base/Best Case Upside at 1,552/1,633/1,733 by End 2024

1H2024 Market Review

Despite forced selling pressure on margined positions in selected small-caps, which damaged retail sentiment on Bursa Malaysia mid-January, the local blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) managed to climb to a fresh 17-month high, with utility, banking and construction heavyweights leading gains on rotational infrastructure plays.

The local blue-chip benchmark index appreciated to a fresh 21-month high late February, lifted by strong gains in banking, 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. However, profittaking interest reversed some gains towards the month-end, as the local currency strengthened after the government indicated potential intervention to check the ringgit’s weakness.

Trading began on a weak note in March, with a selloff sparked by regional weakness after China’s modest GDP growth target of around 5% for 2024 failed to excite investors. Worries the US Federal Reserve may opt to keep interest rates elevated for a prolonged period to contain inflation also pressured sentiment, but Wall Street’s rally to record highs by end March after the US central bank retained its call for 3 interest rate cuts before the end of this year fueled rebound from the selloff.

The local blue-chip benchmark managed climb to a near two-year high by end April, as investors shrugged off geopolitical tensions between Israel and Iran and focused on strong US corporate earnings and robust economic data in the region. It rebounded from a mid-month selloff after heightened Middle East geopolitical tensions following Iran’s aerial strikes on Israel and strong March US retail sales lowered the case for interest rate cuts, and were offset by bargain hunting amid signs of stability in key regional currencies, as investors reassess their view on US interest rates to stay higher for longer.

A sharp slowdown in US jobs growth and softer consumer inflation raised optimism for interest rate cuts by the end of this year, together with strong rallies in rubber glove and technology stocks on spillover demand optimism after the US proposed sharp tariff hikes on China’s healthcare, glove and technology exports lifted the blue-chip benchmark to its highest in more than three years in May. Subsequent overbought momentum and caution over the path ahead for US interest rates given the stubbornly high inflation and economic growth numbers sparked profit-taking towards the month end, dragged down further by high US Treasury and European bond yields which point toward inflationary pressures remaining high.

In early June, technology stocks outperformed on positive news flow over recent data centre deals, while investors stayed calm after the US Federal Reserve held interest rates steady and shifted its guidance to only one rate cut this year and a more aggressive four rate cuts in 2025. Alternating profit-taking and bargain hunting interest forced the local blue-chip benchmark into a narrow range bound consolidation, and in the absence of any significant window-dressing interest towards the end of June and first-half of the year.

For the month of June, the FBM KLCI shed 6.6 points, or 0.4 percent, to 1,590.09, as gains in TM (+55sen), Mr. DIY (+13sen) and Tenaga (+74sen) were offset by falls on Petronas Dagangan (-RM2.17), Axiata (-19sen), Petronas Chemicals (- 40sen) and Sime Darby (-16sen). Average daily traded volume for the month rose to 5.43bn shares, compared to 5.29bn shares for May, while average daily traded value improved to RM4.02bn, against RM3.95bn average the previous month. For 1H 2024, the FBM KLCI was up 9.3%.

On the external front, North Asian and Indian stock markets continue their outperformance last month, led by Taiwan (+8.8%), India (+6.9%) and South Korea (+6.1%). US stocks also did reasonably well, led by the tech-heavy Nasdaq (+5.9%), S&P500 (+3.5%) and Dow Jone (+1.1%). For 1H 2024, Taiwan improved its top podium position with a robust gain of 28.5%, followed by Japan (+18.3%), Nasdaq (+18.1%) and S&P500 (+14.5%). (Refer to Table 1)

Domestically, small-cap stocks extended their uptrend last month, with the FTSE Bursa Malaysia Small Cap (FBMSC) index, a capitalization weighted index of the top 98% of main board stocks, minus the FTSE Bursa Malaysia 100 (FBM100) index, climbing 3.6% to 19,289.76. The FTSE Bursa Malaysia EMAS (FBMEMAS) index, a capitalization weighted index of stocks in the FBM100 plus the FBMSC, rose 0.4% to 12,216.40. For 1H 2024 YTD, the FBMSC rose 18%, while the FBMEMAS gained 12.9%.

The table below illustrates the performance of the FBM KLCI, FBM EMAS and FBM Small Cap Indices compared with major global and regional stock indices for June and 1H 2024.

Referring to the daily FBM KLCI chart below (Chart 1), it rose from 1,446 low (2 Jan) and climbed above 1,500 by late Jan to range within 1,518 and 1,560 for two months, before breaking above the range to peak at 1,632 (23 May). The subsequent profit-taking consolidation forced it down to close at 1,590 for a gain of 135.4 points, or 9.3% gain for 1H 2024.

On the weekly FBM KLCI chart below (Chart 2), we had labeled the sharp sell-off from the 1,525 high (Jan 2008) to 1,157 low (March 2008) as wave a of corrective Elliot Wave count, followed by bounce to 1,305 high (April 2008) to complete wave b. The ensuing down-wave c ended at 801 low (Oct 2008), terminated by the intervention of global central bankers, which reversed bearish market conditions and fueled the subsequent liquidity driven rally.

The following short zig-zag recovery from 801 low to 936 high (Jan 2009) is indicated as wave (1) of a new bullish up-wave, with wave (2) correction to 836 low (March 2009) followed by a strong extended impulse wave (3) upswing lifting the index to the extreme high of 1,597 (July 2011). Note that wave (3) completed a 28-month uptrend from the March 2009 low on a sliding weekly MACD line, a bearish divergence signal vindicated by a steep correction to 1,310 low (Sept 2011), labeled as corrective wave (4).

The ensuing final wave (5) upswing ended at 1,896 high (July 2014), slightly above our 2014 forecast of 1,891, representing the 0.764 length of wave (3), or 1,310 + (761 x 0.764), and matching the 34-month Fibonacci cycle from Sept 2011. Confirmation of the end of wave (5) brings forth the next a-b-c corrective phase, with wave a selling off to 1,766 low (Oct 2014), followed by wave b rebound to 1,858 high (Nov 2014). The steep wave c correction ended at low of 1,671 (Dec 2014). The subsequent counter-trend rally saw a five-wave upswing to peak at 1,867 high (April 2015), while the ensuing sharp correction eventually evolved into a steep “ABC” corrective wave count (refer Table 3).

Zooming back for further details, the steep “ABC” corrective wave began from the end of wave (5) or 1,896 high (July 2014), to low of 1,671 (Dec 2014), or low of A, followed by a counter-trend rally to high of 1,867 (April 2015), or the high of B. The subsequent wave C correction saw a sharp downward acceleration late August 2015 to a 3 ½-year low of 1,503, due to the global sell-off sparked by the shock Chinese yuan devaluation. Note that the steep sell-off to low of 1,503 (25 Aug) matches the 1.618 times length of wave A, which is a significant Fibonacci Projection factor, that is 1,896 – 1,671 = 225 points = wave A, and then 1,867 (wave B) – (225 x 1.618) = 1,503, the low of wave C. The subsequent recovery saw the index trading sideways in abc corrective waves within a contracting triangle chart pattern bordering the low of 1,600 (Jan 2016) and high of 1,729 (Apr 2016), which is the peak of Wave A.

A decisive bounce off the lower band of the contracting triangle pattern at 1,616 (start of Wave B) post-Christmas 2016 sustained for a breakout above the upper band in March 2017, which enhanced upside to a fresh two-year high of 1,796 in mid-June. However, the index subsequently drifted lower from a double-top chart pattern at 1,793 (Sep 2017) and then rebuilt support above a near nine-month low at 1,708 (Dec 2017).

From thereon, the index rallied strongly in early 2018 before turning choppy by end 1Q18 and peaked at 1,896 (April 2018) to chart a major double-top from the July 2014 peak, which also represent the peak of Wave C. A steep correction followed, with the selloff to 1,657 low (June 2018) reversed by a V-shape rebound to 1,826 high (Aug 2018) prior to the selldown to 1,626 low (Dec 2018).

In 2019, the upswings proved weak and fleeting, with brief counter trend rallies checked by the overhead 200-day moving average resistance level. The initial recovery from 1,626 low (i), stalled at high of 1,732 (22/2/19) (ii), which was reversed by the sell-down to 1,572 low (14/5/19), followed by rebound to 1,694 high (2/7/19), and subsequent drift down to a fresh four-year low of 1,548 (10/10/19) (iii). Note that the upswings managed to hold for only two months, while the downswings lasted three months. A feeble recovery to 1,614 high (12/11/19) was promptly neutralized by the subsequent selloff to 1,550 low (4/12/19) prior to year-end window dressing gain to 1,617 high (30/12/19) (iv).

From the start of 2020, a selloff triggered by the domestic political crisis and global correction due to the coronavirus epidemic saw the index plunge to a ten-year low of 1,207 (19/3/20) (v), prior to a sharp V-shape rebound fueled by a massive US fiscal stimulus package, and loan moratorium to counter the virus pandemic. The index peaked at 1,590 high (9/6/20) and 1,618 high (29/7/20), labeled (a), before retracing to 1,474 low (10/9/20) and 1,452 low (2/11/20), labeled (b), prior to a post Budget 2021 rally, which lifted it up to a 21-month high of 1,695 (14/12/20), labeled (c). Profit-taking ahead of the year-end then brought it down to end 2020 at 1,627.

Range bound trade followed during the first two months of 2021, while a weak rebound from 1,557 low (i) in Feb to peak at 1,642 (March 2021), marked (ii), prior to a sell-off linked to key index-linked rubber glove makers dragged it down to low of 1,564 before ending March at 1,573. The sell-down was sparked by fading reopening optimism as fresh lockdowns in Europe due to renewed surge in COVID-19 infections forced the profit-taking correction. Selling pressure on rubber glove makers increased after the US Customs seized Top Glove’s imports on forced labour allegations, with the absence of window-dressing in the last trading day of the first quarter encouraging more investors to trim positions.

In April, the exponential surge in global COVID-19 cases and amid surging local infections raised hopes of resilient demand for rubber glove and other healthcare products, lifting the index to close above the 1,600 psychological level. However, fears over the adverse impact of another full lockdown on the local economy forced it down to re-test six-month lows at 1,556 and 1,552 in May, and dipped to a near eight-month low of 1,531 by end June. The sideways trend continued into July with downward bias, with the spike in daily COVID-19 numbers to five figures and domestic political jitters triggering a selloff to a near nine-month low of 1,494 by end July.

However, the index bottomed out at a fresh nine-month low of 1,483 (iii) early August, which was followed by a sharp rally sparked by a clearer domestic political landscape following the appointment of the 9th Prime Minister who gained support from key opposition parties in tackling the local Covid pandemic

and economic reopening strategies. It subsequently hit a four-month high of 1,604 on the eve of Merdeka Day.

Weaker profit outlook from key rubber glove players, worries over adverse economic impact from the pandemic, proposals for interest-free moratorium on loan repayments and windfall taxes sparked profit-taking correction to a onemonth low of 1,520 by late September. Lacking clarity over the interest waiver on bank loan moratoriums and profit windfall taxes, as well as S&P Global Ratings’ warning on downside systemic risks for Malaysian banks due to government intervention further sidelined investors.

The rally to a fresh six-month high of 1,613 (iv) late October sparked by economic reopening optimism stalled as lacking catalysts prior to Budget 2022 and global supply chain and inflation concerns fueled profit-taking correction by the end of the month. Selling pressure from a one-off 33 percent windfall tax on corporate profits above RM100mn for listed companies from the Budget 2022 proposal sparked a kneejerk downward correction early November, while trading momentum downshifted as market players reduced commitments given the substantial stamp duty hike on trading contract notes.

In mid-December, the index hit a fresh 13-month low of 1,475 (v), pressured by foreign selling in key index heavyweights amid concerns over the economic impact from the Omicron variant and surging inflation. The subsequent V-shape rebound was fueled by window-dressing in key telco and healthcare index heavyweights, sparked further by the revised stamp duty contract cap to RM1,000, which helped it cover the prior 1,545-1,559 gap-down for a strong 2021 close at a two-month high for the year.

However, the index went through another profit-taking correction wave post window-dressing in January 2022, with the index falling from a double-top chart pattern at 1,570 in mid-Jan to a one-month low just above 1,500, before trading sideways to settle at 1,512 just ahead of the long Chinese New Year holiday weekend. In February and March, the index went into a tailspin sparked by the highly stressed geopolitical tensions in the Russia/Ukraine region, as it fluctuated between the 1,540 and 1,620 (a) levels. Cautious range bound trade persisted near the 1,600 level in April, prior to a selloff to a three-month low of 1,531 late May before MSCI rebalancing lifted it up to close at 1,570. A steep selloff followed, depressing it to a fresh two-year low of 1,408 prior to rebound aided by rally spillover from the US.

The ensuing rally spillover from the US on strong earnings stalled at 1,527 high (17/8/22), before reversing down again and sold off to a more than two-year low of 1,372 (13/10/22) on global recession fears, as aggressive US interest rate hikes and China slowdown due to Covid lockdowns dampened sentiment. Subsequently, the appointment of Datuk Seri Anwar Ibrahim as the country’s 10th prime minister, China’s Covid lockdown reversal and economic reopening optimism helped lift it up to a 3-month high of 1,504 (25/11/22). Range bound trade ensued as improving external tone from easing US inflation and China reopening optimism was overshadowed by caution over further policy reviews by the new unity government, but late window-dressing saw the index inching up towards 1,500 by end 2022.

In 2023, the FBM KLCI touched 1,501 high (25/1/23) on hopes for peaking inflation in the US and China’s reopening economy, but sold off sharply to 1,391 low (16/3/23) sparked by contagion fears over failure of a key US regional bank. A relief rebound following the respective forced mergers of Credit Suisse and First Republic Bank to prevent contagion lifted it up to 1,438 high (8/5/23), but the selloff resumed to 1,369 low (8/6/23) after China’s May export numbers slumped sharply to fuel concerns over regional growth, and sank again to 1,370 low (30/6/23) in the absence of window-dressing interest ahead of the first half closing.

Signs of softer US inflation sparked a strong rebound in the local currency and lifted the index up to 1,465 high (4/9/23), as investors shifted focus to potential rollout of key infrastructure projects after the conclusion of the six state elections. Uncertainties over Budget 2024 taxes and global growth and inflation worries dragged it down to 1,412 low (5/10/23), before soft US October inflation raised hopes the Federal Reserve should end its interest rate hikes and pivot to cutting rates next year, lifting it up to a fresh nine-month high of 1,466 (15/11/23). However, it subsequently drifted down to 1,440 low (30/11/23 and 11/12/23) on worries over China’s economic health, prior to rebound in line with global markets after the US Federal Reserve’s dovish guidance for a pivot to interest rate cuts next year. It rose to high of 1,470 (20/12/23) before easing back on profit-taking and absence of window-dressing support by end 2023.

The table below (Table 2) summarizes the up and down cycles for the FBM KLCI from the Dec 2019 high to present, followed by our forecast on the likely outcome by end 2024 (in bold).

The table below (Table 3) tabulates the first and second half performance of the FBM KLCI since 1990. Note that the second half of the year returned a marginally better average gain of 3.3 percent over the past 34 years, compared to the average return of 3.17 percent in the first half. Conversely, the gain ratio (gain divided by the total number of years) for the first half is slightly higher at 0.60, against 0.59 in the second half.

Conclusion

Upside Target Revised Up to 1,552/1,633/1,733 by End 2024

Given the improving uptrend momentum, we have upgraded our view on the current upswing on the FBM KLCI, which should peak at 1,552 (worst case), 1,633 (base case) and 1,733 (best case) by end 2024. The worst case upside target is based on the 50%FR of 1,896 high to 1,207 low, the base case represents the 61.8%FR of the similar move, while the best case upside matches the 76.4%FR level.

Our trading strategy for the 2H2024 will be to buy dips during market corrections, and then lean to selling strength towards 1,552/1,633/1,733 on a worst/base/best case upside scenario. A list of our top ten blue-chip picks for 2H 2024 is provided in the following section.

Technical View on Key US and Regional Indices

The following is our technical outlook for the US Dow Jones Industrial Average (DJIA), Hong Kong’s Hang Seng Index (HSI) and Singapore’s FTSE Straits Times Index (FSSTI) for 2H 2024. All charts are updated to 28 June, 2024.

The DJIA rose from 37,122 low (18 Jan) to 39,889 high (21 Mar) followed by dip to 37,611 low (17 Apr), then rallied to 40,077 record high (20 May) but then sank to 38,000 low (30 May) prior to closing at 39,118 for a 1.1% gain for June, and 3.8% gain for 1H2024. Key upside hurdles will be at 40,077 and the 200%FP (40,859), while key chart supports from the 200-day ma (37,196) and 150%FP (35,201) cushion downside.

On the weekly chart, significant resistance levels are seen at 42,000 and the 123.6%FP (44,108), while key chart supports will be from the steadily rising 100- week (34,931) and 200-week (33,926) moving averages.

The Hang Seng Index rose from 15-month low of 14,794 (22 Jan) and subsequently spiked up to a nine-month high of 19,706 (20 May) prior to profit-taking pullback to end at 17,718 for a 2% loss for June, but gained 3.9% for 1H2024. Immediate overhead resistance will be from the recent high of 19,706, with next upside hurdle at 38.2%FR (20,922), while key chart supports are at the 200-day ma (17,198) and 22/1/24 low (14,794).

On the weekly chart, crucial support capping downside remains at the Oct 2022 low (14,597) and Oct 2008 low (10,676), while key overhead resistance will be from the falling 200-week (21,801) moving average.

Singapore’s STI rose from 3,092 low (14 Feb) and staged gradual appreciation to a fresh nine-month high of 3,355 (3 June) prior to closing at 3,332 for a minor 0.1% loss for June, and 2.9% gain for 1H2024. Key upside hurdles stays at the Feb 2022 peak (3,466) and 123.6%FP (3,583), while key chart supports are from the lower Bollinger band (3,291) and steadily rising 100-day ma (3,241).

On the weekly chart, major overhead resistance levels remain at the April 2015 high (3,549) and May 2018 high (3,641), while key chart supports will be at the 200-week moving average (3,147) and 61.8%FR (2,923).

Source: TA Research - 2 Jul 2024