Market expected to rebound to 1,430 points level during Raya week - Manokaran

WEEKLY MARKET ANALYSIS BY MANOKARAN MOTTAIN

THE local equities market continued its range bound trading last week albeit on a lower note due to profit taking activities ahead of the Hari Raya Aidilfitri holidays. The benchmark KLCI Index ended the week lower at 1,422.11 points (-13.02 points or -0.90%).

The average daily value fell marginally by 2.2% on a weekly basis to RM1.74 billion per day from RM1.78 billion per day last week. Last week’s trading value remains 17% below the past 100-day average daily trading value of RM2.10 billion per day.

In the bond market, US bond yields rose marginally as economic reports continue to point to an economic slowdown with the Philadelphia Federal manufacturing index showing a much greater contraction than forecasted.

In addition, S&P Global Flash Purchasing Managers’ Index also surprised the market when it increased to 53.5 in April 2023 from 52.3 in March 2023. April’s data indicated a broad based increase in business activity in the US driven by stronger demand conditions and new orders. Some companies also noted that new staff hiring had boosted output.   

The 10-year US Treasury (UST) yields rose by five (5) basis points to 3.57% from 3.52% in the previous week. This increased the total yield gains over the past 52 weeks to 67 basis points.   

The UST 2-year yields also rose by eight (8) basis points to 4.18% from last Friday’s close of 4.10%. This continues the yield curve inversion between the UST 2-year and 10-year notes into its 41st consecutive week with the yield spreads rising to -61 basis points from -58 basis points last week.  

The 10-year MGS bond yields was almost unchanged during the week as it fell by a single (1) basis points to 3.82% from 3.83% last Friday causing the yield spreads between both countries’ 10-year bonds to narrow to 25 basis points from 31 basis points last week.  

ECONOMICS

The Department of Statistics Malaysia disclosed that the Consumer Price Index (CPI) for March 2023 fell to 3.4% in March 2022. The slower inflation was mainly driven by the decrease in the price of unleaded petrol RON97 due to lower year-on-year prices of Brent oil prices which averaged US$78.53 per barrel in March 2023 from US$115.59 in March last year.

This in turn helped to lower the inflation for the Transport group to 2.4%. Meanwhile, inflation for Food & Non-Alcoholic Beverages (6.9%) and Restaurants & Hotels (7.2%) continued to remain high. The Food & Non-Alcoholic Beverages (29.5%); Transport (14.6%) and Restaurants & Hotels (2.9%) collectively comprise 47.0% of the total weight for the CPI.

Other sectors that contributed to the inflation in March 2023 were the Furnishings, Household Equipment & Routine Household Maintenance (3.1%); Health (2.2%), Miscellaneous Goods & Services (2.1%), Recreation Services & Culture (1.9%); Education (1.7%); Housing, Water, Electricity, Gas & Other Fuels (1.6%); Alcoholic Beverages & Tobacco (0.6%) and Clothing & Footwear (0.5%).

Core inflation rose by 3.8% from 3.9% in February 2023 due to the Food & Non-Alcoholic Beverages sector that recorded a 7.5% increase, followed by the Restaurants & Hotels sector (7.2%) and the Transport sector (5.7%).

CURRENCY

The Ringgit remained in consolidation mode over the past week as foreign fund managers start rebalancing their portfolios in anticipation of another rate hike by the US Federal Reserve. It gave ground against most of the major currencies last week (especially the US Dollar) with the exception of the Euro, which ended almost unchanged at RM4.8535 / EUR1.00.

The local currency ended the week lower against the US Dollar at RM4.4355 / USD1.00 (+3.55sen), the Singapore Dollar at RM3.3235 / SGD1.00 (+0.85sen), the British Pound at RM5.5027 / GBP1.00 (+1.41sen) and the Japanese Yen RM3.3100 / JPY100 (+0.80sen).

MY OPINION

The local equities market performed as expected again last week as it traded within the 1,415 – 1,435 point range. The profit taking activities was anticipated, as traders are usually reluctant to leave open positions over extended holiday weekends.

Nevertheless, market direction in the coming week will be news flow driven once again with the KLCI expected to rebound back to the 1,430 points level. It can gradually head towards 1,450 points level if there are continuous positive news flow especially on corporate earnings for 1Q2023.      

The performance of the US bond market last week indicate that the bond market is trying to find its footing and looks to be building a base level for yields at these levels. Nevertheless, we are still seeing portfolio managers pricing in the probability of a final 25 basis points rate hike to the FFR in May 2023 by the US Federal Reserve as well as the possibility of the FFR being maintained at 5.00%-5.25% throughout 2023.  

 The performance of the Ringgit was within expectations last week as it only weakened markedly against the US Dollar due to portfolio rebalancing exercises.

Going forward, I expect the Ringgit to trade between RM4.38 - RM4.48 in the coming week as the industry looks forward to the upcoming Bank Negara Monetary Policy Committee Meeting on 2-3 May 2023. The current consensus by economists is that Bank Negara will maintain the Overnight Policy Rate at 2.75% in the coming meeting.

Finally, I would like to take this opportunity to wish all Muslim readers Selamat Hari Raya Aidilfitri & Maaf Zahir dan Batin. - DagangNews.com

Manokaran Mottain has been an economist 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