The equity market will continue to hover around 1,500 points level - Manokaran

WEEKLY MARKET ANALYSIS BY MANOKARAN MOTTAIN

IT is not surprising that the benchmark KLCI Index ended the week on a lower note at 1,491.18 points (-9.11 points or -0.6%). Until the trading volume and value picks up, it remains susceptible to sudden movements as witnessed in the month end closing of 1,512.80 points on 30 August 2022 before sliding back down by more than 20 points in the subsequent two trading days.

The 2Q22 earnings from corporates did little to spur sentiments as most of them were in line with expectations. Those that performed above expectations were in the minority.  

Therefore, in my view, the equities market will continue to hover around the 1,500 points level with a +/- 50 points variation in the next few weeks given the lack of market moving catalysts to spur increased trading among investors and traders.

The nearest potential catalyst for the market is the Budget 2023 which has been brought forward to 7 October 2022 from 28 October 2022.    

The bond yields for US Treasuries (UST) all rose for the second consecutive following US Federal Reserve Chairman Jerome Powell’s speech. Yields for the 10-year UST jumped by a stunning 16 basis points to 3.19 from 3.03% last week as bond managers started to factor in a potential 75 basis points hike to the Federal Funds Rate by US Federal Reserve at its upcoming meeting in September 2022.

The currency market is currently predicting a 75% chance of a 75 basis points hike by the US Federal Reserve.

However, the massive spike in the UST 10-year yields only narrowed the yield curve inversion between the UST 2-year and 10-year notes by 15 basis points to -20 basis points from -35 basis points last week.

This means the yield curve inversion continues into its 8th consecutive week as the UST 2-year notes yield only rose by a single basis point during the week to 3.39% from 3.38%.  The long-term average of the yield spread for both UST is +0.92% or +92 basis points.   

Unsurprisingly, the 10-year MGS yields rose in response to the spike in its US counterpart, gaining 7 basis points to 4.03% from 3.96% last week. The jump in the UST yields brings the yield spreads between both countries’ 10-year bonds to narrow further by 9 basis points to just 84 basis points.

Therefore, I am maintaining my view that the MGS yields is likely to continue to be under pressure in the coming weeks in the run up to the BNM Monetary Policy Committee and US Federal Open Market Committee meetings next month.

ECONOMY

Department of Statistics Malaysia disclosed that Malaysia’s export and import unit value index for the month of July 2022 grew by 1.6% and 0.3% respectively. The gains for both indices came from an increase in mineral fuels, machinery and transport equipment as well as miscellaneous manufactured articles. 

However, the export and import volume indices for July 2022 decreased by 9.7% and 4.8% respectively. Nevertheless, on an annual basis, export unit value and volume indices grew by 20.6% and 14.4% while import unit value and volume indices grew by 12.9% and 25.7% respectively. Overall, Malaysia’s trade performance for July 2022 grew 6.8% year-on-year from July 2021.

In a separate development, Malaysia’s Consumer Price Index rose by 4.4% on a year-on-year basis to 127.9 in July 2022 from 122.5 in July 2021 as the food sub-index spiked +6.1% during the period and remains the main contributor to the rise in inflation for the month.

All the other sub-indices also registered increases during the month led by restaurants & hotels (+5.8%), transport (+5.6%), furnishings, household equipment & routine household maintenance (+4.0%), housing, water, electricity, gas & other fuels (+3.8%), recreation services and culture (+2.5%), miscellaneous goods & services (+2.1%) and education (+1.2%). Meanwhile, core inflation and inflation without fuel both rose +3.4% and +4.2% respectively on a year-on-year basis.

RAM Ratings has lifted Malaysia’s 2022 GDP growth to 6.8% from 5.8% due to a strong recovery in domestic consumer demand which rose by 8.6% while exports for 1H2022 rose by 6.1% year on year. This helped to bring down the unemployment rate to 3.8% in June 2022. Nevertheless, RAM maintained its 2023 GDP forecast at 4.5% to 5.5%.    

S&P Global Malaysia Manufacturing Purchasing Manager’s Index (PMI) declined marginally to 50.3 in August 2022 from 50.6 in the previous month. S&P Global Market Intelligence said the latest reading indicates a gradual slowdown in manufacturing production and GDP growth towards the end of 3Q2022. Nevertheless, it noted that local manufacturers remained optimistic on their outlook for the rest of the year and are hoping that demand conditions improve as the Covid-19 pandemic is gradually being brough under control.

Petroliam Nasional Bhd (Petronas) said crude oil prices are expected to normalize to pre-COVID-19 pandemic levels from 2023. Group CEO Datuk Tengku Muhammad Taufik Tengku Aziz said Petronas remains cautious at the current moment as the elevated oil prices were due to underinvestment by the industry over the past five (5) years. Petronas is also in the midst of negotiating with its vendors to find solutions on rising input costs as drilling costs have surged by up to 200% on certain daily rates. 

Bank Negara Malaysia has disclosed that Malaysia’s official reserve assets amounts to US$109.18 billion (RM489.6 billion) as at 31 July 2022 while other foreign currency assets stood at US$5.3 million.   

CURRENCY

The Ringgit lost ground against the US Dollar over the past week at RM4.4855 / USD1.00 (-2.0sen) as portfolio managers resumed their rebalancing exercises in anticipation of the US Federal Reserve hiking interest further at their upcoming FOMC meeting.

The Ringgit continued to gain against virtually all the other major currencies for a third consecutive week with the exception of the Euro which rose against the local currency at RM4.4636 / EUR1.00 (-1.3sen).

The Ringgit rose against the British Pound at RM5.1588 / GBP1.00 (+8.6sen), the Japanese Yen at RM3.1930 / JPY100 (+5.4sen), and the Singapore Dollar at RM3.1968 / SGD1.00 (+0.6sen).

For the week ahead, I am maintaining my forecasted on the Ringgit / USD trading band at between RM4.45 to RM4.51.

For the other major currencies, I maintain my view that they will be heading into a consolidating phase in the coming weeks following their sizable gains over the past three 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