Benchmark KLCI to re-test the 1,500-point level towards the end of the month - Manokaran

WEEKLY MARKET ANALYSIS BY MANOKARAN MOTTAIN

THE local equities market was generally flattish over the past week as profit taking activities continued. Prime Minister Datuk Seri Anwar Ibrahim (DSAI) announced the appointment of 27 deputy ministers to complete his ministerial cabinet. The most notable additions were the appointment of two (2) deputy finance ministers.

The benchmark KLCI Index ended the week slightly lower at 1,477.19 points (-4.61 points or -0.31%). I expect the market to remain range bound in the coming week as I do not expect any major corporate or political developments to occur.

Most traders & investors will be looking forward to the first session of the 15th Parliament session on 19 December 2022 with the key agendas being the election of a new Speaker for the Parliament and a vote of confidence on the leadership of DSAI.      

Meanwhile, US bond yields reversed its two-week slide and rebounded back as wholesale prices for November 2022 rose 0.3%, higher than the 0.2% expected by economists.

It was the latest in a series of economic data releases that suggests that the US Federal Reserve may have to raise the terminal rate of its interest rate upcycle and hold it longer than expected due to the persistently high inflationary pressures.

The US Federal Open Market Committee (FOMC) is due to meet this week on 13-14 December 2022 with investors expecting the FOMC to raise the Federal Funds Rate by 50 basis points from the current 3.75% - 4.00% range.

The 10-year UST yields rose by 10 basis points over the past week to 3.59% from 3.49%. This brings the total yield gains over the past 15 weeks to just 56 basis points.

The UST 2-year yields gained 6 basis points to 4.34% from last Friday’s close of 4.28%. This brings the yield curve inversion between the UST 2-year and 10-year notes into its 22nd consecutive week. The yield spreads finally started to narrow after widening for the past six consecutive weeks to -75 basis points from -79 basis points in the week before. The long-term average of the yield spread for both UST is +0.92% or +92 basis points.   

The yield gains in the US market also spilled over to the local bond market as foreign investors locked in profits following the rebound in prices over the past two weeks following GE15. Yields for the 10-year MGS bonds rose marginally by four (4) basis points to 4.06% from 4.02% last Friday. The latest result narrows the yield spreads between both countries’ 10-year bonds to 47 basis points from 53 basis points last week. My view of the MGS movement remains unchanged at +/- 20 basis points from 4.25% in the near term, due to narrow yield spread against the UST.  

ECONOMICS

The Department of Statistics Malaysia disclosed that the unemployment rate in the country stood at 3.6% as at October 2022. The number of unemployed persons fell to 602,000 persons in October 2022 as compared to 605,000 in September 2022 as the number of workers rose to 16.68 million as compared to 16.66 million in the previous month. However, the Workforce Participation Rate remained unchanged at 69.7%.

China’s central bank announced that it had added 32 tons of gold worth around US$1.8 billion (RM7.9 billion) to its holdings at the end of November 2022 which brings its total reported holdings in the precious metal to 1,980 tons. China currently has the sixth largest official national gold reserves in the world. United States currently has the world’s biggest gold reserves at 8,133.5 tons.  The World Gold Council disclosed that central banks across the world bought 399 tons of gold in 3Q2022 – the largest quarterly purchase in history.

Bank Negara Malaysia’s international reserves amounted to US$109.7 billion (RM483.2 billion) as at 30 November 2022 which is sufficient to finance 5.3 months of imports of goods and services. The reserves position is also 1x the total short term external debt.    

CURRENCY

The Ringgit weakened marginally against the US Dollar after four consecutive weeks of gains as currency traders took some profits to prepare for the upcoming FOMC meeting this week. The local currency ended the week higher at RM4.4010 / USD1.00 (-1.8sen). 

The local currency generally weakened against most of the other major currencies with the exception of the Japanese Yen, which fell against the Ringgit by 4.3sen to RM3.2190 / JPY100. The Ringgit rose for the third consecutive week against the Singapore Dollar RM3.2516 / SGD1.00 (-0.7sen), the British Pound at RM5.3982 / GBP1.00 (-0.6sen) and the Euro at RM4.6363 / EUR1.00 (-1.5sen).

MY OPINION

I expect the benchmark KLCI to re-test the 1,500-point level towards the end of the month as there could be some window dressing activities given the weak market conditions this year.

The next resistance point is at 1,520 points but to surpass the 1,520 points level, the local equities market will need to be supported by a major catalyst, which may very well come in the form of a revised Budget 2023, which is very likely to be tabled before the end of 2022.   

For the currency market, I foresee the Ringgit to remain range bound between RM4.35 and RM4.45 against the US Dollar as there may be some volatility after the FOMC meeting.

I would also expect similar performances by the Ringgit against the other major currencies as well as it had strengthened significantly over the past few weeks. – DagangNews.com

 Manokaran Mottain has been an economist with a number of financial institutions is now managing his own firm, Rising Success Consultancy Sdn Bhd