Improved corporate earnings is vital for KLCI to stay above 1,500 points - Manokaran

WEEKLY MARKET ANALYSIS BY MANOKARAN MOTTAIN

The local stock market continued its march higher propelled by steady net foreign institutional buying throughout the week.

On-going portfolio rebalancing exercises helped to push the KLCI Index to end the week higher by 15.94 points to 1,549.49 points (+1.04%).

Trading volume in the market rose to RM2.70 billion per day last week from RM2.15 billion per day in the previous week.

For the coming week, I expect the KLCI Index to trade between 1,525 and 1,550 points as it may consolidate at this range for a while as investors digest the on-going corporate releases for 4Q2023.

In my view, it will be challenging for the KLCI Index to move and stay above 1,550 points just based on fund flows as additional factors will have to come into play such as improved corporate earnings outlook for 2024 to propel the market higher.

So far, the corporate results for 4Q2023 have been quite mixed.   

US Treasury yields held steady during the week as comments from the US Federal Reserve members indicated that they would like to see more sustained decrease in inflationary pressures over the coming months before they decide to cut interest rates after both the US Consumer Price Index (CPI) and Producer Price Index (PPI) for January 2024 came in higher than expected.     

Consequently, the UST 10-year yields fell two (2) basis points to 4.25% level as bond traders continue to temper their timing expectations for rate cuts by the US Federal Reserve.

The bond market is now pricing in a probability of over 90% that the Federal Funds Rate (FFR) will be maintained at the 19-20 March 2024 Federal Open Market Committee (FOMC) meeting.

The 10-year yield currently prices in 100 – 125 basis points reduction for the medium term from the current FFR rate of 5.25% - 5.50%. Meanwhile, the local 10-year the MGS yield rose a further five (5) basis points to 3.90% which narrowed the negative yield differential to 35 basis points.

The Ringgit was mixed against the major currencies over the past week.

The local currency ended the week marginally higher against the Japanese Yen at 31.56 to RM1.00 and unchanged against the US Dollar at RM4.78 and the Singapore Dollar at RM3.55 but it weakened against the Euro at RM5.14 (+3.0sen) and the Pound Sterling at RM6.05 (+3.0sen).

The Ringgit’s movement against the US Dollar was within my expected USD-MYR trading range of between RM4.70 – RM4.80.  

In my opinion, the Ringgit is likely to consolidate within my projected trading range in the coming week due to the following factors:
 

1. Fund flows between the fixed income and equity markets have more or less equalized and portfolio rebalancing exercises in the fixed income are close to an end. Hence we are likely to see the Ringgit stabilize at the current range and start to trend higher once the US Federal Reserve indicates that it will start to cut rates.
   
    
2. Companies who are exporting will have increased confidence to convert their foreign currency proceeds quickly if there are indications that the Ringgit has reached the bottom and is poised to rebound significantly as we get closer to the second half of 2024.

Over the medium term, I foresee the Ringgit to trade closer to RM4.50 level but this has to be accompanied by improved trade and economic activities and a steady positive rise in the balance of payments.

The recovery of the semiconductor industry should be positive for our country as we are the seventh largest semiconductor exporter in the world with a global market share of 7%.

In terms of assembly, testing and packaging of semiconductors, Malaysia has a global market share of 13%.

In addition, the increasing number of inbound tourists would also have a positive spin-off effect for the local economy.

Malaysia is targeting to have a record 27.3 million tourists visiting the country in 2024 which is a 35% increase from the 20.1 million foreign tourists visiting our country in 2023.

This target is supported by the government measures such as the charter flight matching grant incentive, the visa liberalisation program and promotions at overseas exhibitions. - DagangNews.com

Manokaran Mottain is an economist with many years of experiences with a number of financial institutions and is now managing his own firm, Rising Success Consultancy Sdn Bhd and has been writing his economic analysis on a weekly basis in DagangNews.com since 2022.      

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