The outbreak of war between Palestine-Israel will subdued KLCI in the near term - Manokaran

WEEKLY MARKET ANALYSIS BY MANOKARAN MOTTAIN

THE outbreak of war between Palestine and Israel on Saturday will also keep sentiments subdued in the near term, after the benchmark KLCI Index fell 0.5% to end the week at 1,416.88 points on the back of selling activities by foreign institutional funds especially towards the latter part of the week.

Market sentiments were also dampened by the massive annual losses posted by Top Glove and the termination of the strategic collaboration agreement between Lembaga Tabung Angkatan Tentera, KLK and Boustead Holdings.   

As the KLCI Index is still on its back foot, I expect it to trade between the 1,400 and 1,430 points range in the coming week.

Trading value each day has more or less stabilized at the RM2.1 billion level over the past two weeks and is likely to continue as we head towards the tabling of Budget 2024 on 13 October 2023.

Profit taking in the local stock market continued last week albeit at a slower pace last week as the action was focused on the bond markets which fell sharply.

Barisan Nasional (BN) managed to retain Pelangai state seat with a slightly smaller 2,949 vote majority over Perikatan Nasional.

Nevertheless, the win is significant for BN following its set backs in the August state elections and also helps to reinforce political stability of the unity government.      

Bond yields in the US continue their rally over the past week as bond fund managers continue to rebalance their portfolios en-masse as they are forced to come to terms that inflationary forces are far stronger and persistent than their initial expectations and the US Federal Reserve has to hold interest rates higher for a much longer period of time to tame inflation before an interest rate pivot occurs. 

UST 10-year yields roared by 22 basis points last week to 4.80% and this had a knock-on effect on the MGS yield curve as foreign institutional funds turned net sellers over the week.

The 10-year MGS bond yields rose breached the 4.00% level to close at 4.05% which widens the negative yield differential between the 10-year MGS and UST to 75 basis points.

This raises the prospect of further sell off in the MGS market given the huge yield and sovereign rating differential.   

The Ringgit came under suddenly selling pressure as foreign institutional fund managers sold aggressively in both the local bond and equity markets over the past week.

The Ringgit hit an intra-week low of RM4.729 against the US Dollar before recovering slightly to end the week at RM4.7120.

The aggressive sell off in the bond market was worse than I expected hence I am adjusting my expected USD-MYR range of between RM4.65 – RM4.75 in the coming week. - 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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