KLCI New Year’s spike, expect some volatility ahead - Manokaran

WEEKLY MARKET ANALYSIS BY MANOKARAN MOTTAIN

KLCI started the year with a bang as it soared to its highest level since February 2023 when it rose 32.95 points over the past week to close at 1,487.61 points (+2.26%).

Trading activities on the market spiked to RM3.17 billion per day last week from RM2.34 billion per day in the previous week.

Judging from the trading flows, it is clear that the market is driven by portfolio rebalancing exercises by local and foreign institutional funds in anticipation of a better year ahead for equities.

Nevertheless, I am still of the view that there could some volatility ahead given the fact that foreign investors are dialing back expectations of interest rate cuts judging from the movements in the currency and bond markets.

I am of the view that the KLCI will move between 1,500 points and 1,450 points in the coming week.     

US Treasury yields roared back after December 2023 non-farm payrolls came in much stronger than expected at 216,000 against economists’ expectation 170,000 jobs while the unemployment came in at 3.7% against a consensus of 3.8%.

In addition, ADP announced that private payrolls for December 2023 came in at 164,000 which was also much higher than the consensus estimates of 130,000.

UST 10-year yields rebounded back past the 4.00% level last week to close at 4.05% following the solid non-farm payroll numbers which can potentially slow down the pace of rate cuts going forward.

The bond market had earlier priced in expectations that the US Federal Reserve will start to cut rates at its March 2024 meeting.

Similarly, the local 10-year the MGS yield rose 14 basis points to 3.88% which maintained the negative yield differential at 17 basis points.

Given the narrowing negative yield differential, I expect the MGS yield direction to be dictated by the US bond yields in the near term.     

The Ringgit weakened against all of the major regional currencies over the week on the back of adjusted expectations that interest rate cuts in developed countries may materialise later than expected.

The local currency ended lower against the US Dollar at RM4.6520 (+4.70sen), the Pound Sterling at RM5.8960 (+4.60sen), the Euro at RM5.0690 (+2.50sen) and the Singapore Dollar at RM3.4920 (+1.00sen).

I expect the currency markets to continue consolidating at the current levels and tweak my USD-MYR trading range to RM4.60 – RM4.70 as I expect the Ringgit to continue to climb against the US Dollar over the medium term on rising expectations of US interest rate cuts from 2Q2024 onwards. - 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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