Local equities expected to benefit from the rising of semiconductor exports, tourism in 2024 - Manokaran

WEEKLY MARKET ANALYSIS BY MANOKARAN MOTTAIN

AS expected, KLCI ended the week virtually unchanged at 1,487.34 points (-0.01%) after trying to test the psychological 1,500 point level.

Trading activities on the market continues to be robust rising to RM3.33 billion per day last week from RM3.17 billion per day in the previous week.

The large in-flow of funds into the equity market is reflected in the foreign reserves of Bank Negara which rose to US$113.5 billion as at 29 December 2023 from US$112.8 billion on 15 December 2023.

However, foreign funds have turned net sellers towards the latter half of the week which indicates that the market’s buying momentum is slowing and will likely to consolidate in the coming week with the KLCI expected to move between 1,480 points and 1,500 points in the coming week.

Nevertheless, the overall outlook for equities is bright this year as the Minister of Investment, Trade and Industry Datuk Seri Tengku Zafrul Abdul Aziz said Malaysia’s economy is expected to benefit from rising semiconductor exports as well as continued momentum in the tourism sector in 2024.    

US Treasury yields consolidated over the past week after the US Consumer Price Index for December 2023 came in stronger than expected at 0.3% on a monthly basis and 3.4% on a yearly basis against economists’ expectation of 0.2% and 3.4% respectively.

However, core inflation (which excludes food and energy prices) was in line with economists’ expectations at 0.3% and 3.9% on a monthly and yearly basis.  

UST 10-year yields fell 11 basis points to 3.94% level as bond fund managers continue to cut their bond holdings ahead of the expected interest rate cuts going forward.

Currently, the US bond market has priced in a total of six rate cuts by the US Federal Reserve against just three cuts from US Federal Reserve’s the dot plot indication.

Hence there could be volatility ahead especially if the market is proven wrong on their expectations as it has already priced in a 68% likelihood that the US Federal Reserve will start to cut rates at its 19-20 March 2024 meeting.

Meanwhile, the local 10-year the MGS yield shed 8 basis points to 3.80% which narrowed the negative yield differential to 14 basis points.

The Ringgit was mixed against all of the major regional currencies over the week as the foreign currency traders started to cut back on interest rate cut expectations.

The local currency managed to ended the week on a stronger footing against the US Dollar at RM4.6460, primarily due to fund flows into the equity market.

Meanwhile the Ringgit slipped against the Pound Sterling at RM5.9314 (+3.54sen), the Euro at RM5.0981 (+2.91sen) and the Singapore Dollar at RM3.4929 (+0.09sen).

Given the lack of major near term catalysts, I expect the currency markets to continue consolidating at the current levels and maintain my USD-MYR trading range between RM4.60 – RM4.70.

Over the longer term, I expect the Ringgit to continue to climb against the US Dollar once the US Federal Reserve starts to cut interest rates, likely from 2Q2024 onwards.    

Going forward, I believe the next major news flow would be on interest rates and inflation. Last week, European Central Bank President - Christine Lagarde disclosed that interest rates in the Eurozone had reached their peak and barring any additional inflationary shocks, interest rates are not likely to rise any further from its current levels.

The main refinancing operations and deposit facility rates currently stand at 4.50% and 4.00% respectively.

Therefore, the market will place high emphasis on the Bank Negara’s first Monetary Policy Committee meeting on 23-24 January 2024 and the US Federal Reserve’s Federal Open Markets Committee meeting in the week after on 30-31 January 2024.

I expect both Bank Negara and US Federal Reserve to hold the Overnight Policy Rate and the Federal Funds Rate at 3.00% and 5.25-5.50% respectively as inflationary pressures continue to slow down further.- 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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