KLCI: A tumultuous week for small medium cap stocks, clearly remains in consolidation mode - Manokaran

Weekly market opinion by Manokaran Mottain

KLCI ended a tumultuous week virtually unchanged once again as it closed just a single point lower at 1,486.37 points (-0.06%) due to late bargain hunting activities in the large caps.

Sentiments in the small and medium cap stocks were badly shaken as we observed several stock counters experiencing multiple limit downs throughout the week.

Trading activities on the market continues to be robust at RM3.24 billion per day last week from RM3.33 billion per day in the previous week.

Foreign funds remained net sellers during the week but the market was shored up by buying support from local institutional funds.

Focus would be on Bank Negara Malaysia’s Monetary Policy Committee (MPC) meeting next week on 23-24 January 2024 which is unlikely to surprise the market as it expects the MPC to keep the Overnight Policy Rate unchanged at 3.00%.

Without other catalysts or news flow, the local stock market clearly remains in consolidation mode as witnessed by its flattish performance over the past two weeks.

Therefore, I expect it to remain trading between 1,500 points and 1,450 points in the coming week.

US Treasury yields roared back strongly over the past week after the US Labor Department reported that initial jobless claims fell by 16,000 to 187,000 which was significantly lower than economists’ estimate of 208,000.

In addition, December 2023’s retail sales data also rose 0.6% which was higher than economists’ estimate of 0.4% and indicates that consumer demand remains strong.

UST 10-year yields rebounded sharply by 19 basis points to 4.13% level following remarks from Federal Reserve Governor Christopher Waller that the US central bank is in no hurry to cut the Federal Funds Rate despite declining inflationary pressures.

This caused bond fund managers to reverse their near-term outlook on the bond market and adjust their expected number of rate cuts for 2024. Meanwhile, the local 10-year the MGS yield only rose marginally by 2 basis points to 3.82% which widened the negative yield differential back to 31 basis points.

The Ringgit had a tough week as funds outflow from the equities and bonds market continued as foreign currency traders adjusted their interest rate cut expectations after news that the Federal Reserve and the European Central Bank were in no hurry to reduce interest rates despite the falling inflation.

The local currency ended the week on its back foot against the US Dollar at RM4.7170 (+7.1sen), the Pound Sterling at RM5.9825 (+5.11sen), the Euro at RM5.1331 (+3.5sen) and the Singapore Dollar at RM3.5183 (+2.54sen).

Given the lack of major near-term catalysts, I expect the currency markets to continue consolidating at the current levels but adjust my USD-MYR trading range between RM4.65 – RM4.75 as the US Dollar is likely to remain elevated until there is more certainty on the estimated timeframe of the US Federal Reserve starting to cut interest rates.     

Meanwhile, the Department of Statistics reported that Malaysia’s 4th quarter 2023 GDP growth came in at 3.4% and brings the full year growth rate to 3.8% in 2023 from 8.7% in 2022.

4Q2023’s growth was underpinned by a 4.7% growth in the services sector but it was offset by the manufacturing sector which registered a marginal growth of just 0.1% while the electrical, electronic & optical products, petroleum, chemical, rubber & plastic products declined during 4Q2023.

This caused the country’s trade performance to decline with a 8% and 6.4% fall in exports and imports respectively. Nevertheless, I expect Malaysia’s growth rate to rebound to between 4.0% to 5.0% in 2024.

This comes from a recovery in exports, resilient domestic demand and benign inflationary pressures.     

China posted a full year economic growth rate of 5.2% for 2023 which also happens to be its lowest expansion rate since 1990 if we exclude the Covid-19 pandemic lockdown years.

However, economists are expecting China’s economy to slow further to between 4.5% to 5.0% in 2024 and this will be a damper for Malaysia’s economic and the Ringgit’s outlook as China is a major economic partner for our country. - 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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