The local blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) began the week extending gains from the previous Friday, as gains on Wall Street following the naming of hedge fund investor Scott Bessent as the next U.S. Treasury Secretary spilled over into the local market. Market sentiment then remained positive, buoyed by bargain hunting interest in the utilities, health care, consumer products and property sectors. Investors however began taking profits ahead of the weekend, after economic data showed slower progress in lowering inflation in the US, raising concerns that the Federal Reserve might be hesitant regarding further interest rate cuts.

Week-on-week, the FBM KLCI gained 4.51 points, or 0.28 percent to 1,594.29, as dips on Petronas Chemicals (-26sen), PPB Group (-50sen) and MISC (-24sen) were offset by gains in YTL Corp (+31sen), YTL Power (+50sen) and Petronas Dagangan (+RM1.88). Average daily traded volume last week improved moderately to 2.99 billion shares versus 2.91 billion shares the previous week, while average daily traded value rebounded to RM3.36 billion, against the RM2.31 billion average the previous week, as trading participation on key index heavyweights increased substantially.

External factors are expected to continue dominating investor sentiment and the local market direction this week. Doubts about the US Federal Reserve pursuing further easing this month have increased after October’s core personal consumption expenditure of 3.3% YoY, unchanged from September but higher than 3.2% in August, showed lack of progress in moving towards the Fed's 2% inflation target. Worries persist on the possibilities of Japan raising interest rate after a stronger than expected inflation, incoming US President Donald Trump’s starting another round of tariff war and worsening geopolitical tensions post Russia’s threat of using nuclear weapons that could keep the local equities in a tight trading range. Local institutional funds are expected to continue providing buying support ahead of the possible year-end window dressing activities.

Possibilities for a year-end window dressing this month is not remote if the Fed continues its dovish monetary guidance later this month, China announces more measures to revive its economy and financial markets are convinced that an escalation in geopolitical tensions, especially between Russia, Ukraine and their respective allies, could be prevented, more so after the truce between Israel and Lebanon weakened Iran’s position. Recall that the FBMKLCI witnessed the best average gain of 3.57% with the index overwhelmingly rising in 30 of the past 34 years or 88.2% of the time in December. Maintain buy on weakness domestic sectors like banks, construction, consumer, healthcare, power and utilities, property and telcos.

Slight improvement to 50.3 in China’s November purchasing managers’ index (PMI) last Saturday, up from 50.1 in October, could uphold hopes for a resilient reading in the S&P Global Malaysia manufacturing PMI today, which was below the expansionary threshold at 49.5 in October. While China’s manufacturing PMI saw a moderate improvement, its nonmanufacturing PMI fell to 50 in November, down from 50.2 in the previous month, due to stagnation in the services and construction sectors. However, two consecutive months of expansion in both indicators raised hopes that China’s rave of stimulus measures since last September, including the five-year package totaling 10tn yuan (USD1.4tn) to tackle local government debt problems, are bearing fruits. China is expected to work out more measures to revive its economy amidst looming threat from Trump’s tariff hike and the details could emerge in the Central Economic Work Conference this month. It could announce bigger stimulus in the National People’s Congress in March next year, if trade war with US heightens.

While the US is expected to announce similar data from the S&P Global and the Institute of Supply Management this week, greater focus will be on the Federal Reserve’s Beige Book and labour market data like the change in nonfarm payroll, unemployment rate and average hourly earnings this Thursday. These data will provide clues on the possibility of further monetary policy easing later this month and will influence its guidance on forward economic projections.

Source: TA Research - 2 Dec 2024