Stock market will continue consolidating until the next Feds meeting - Manokaran

Weekly Market Analysis by MANOKARAN MOTTAIN

As expected, the local stock market remained in consolidation mode last week as there were no major market moving catalysts.

The 1Q22 corporate earnings releases so far yielded a mixed bag of results. Generally, plantation, healthcare and construction companies posted improved year-on-year performances while the results of companies in the oil and gas, property and manufacturing sectors were chequered.

Trading volume and value in the local market continues to stay modest as the results and business outlook from the 1Q22 did little to improve the overall investor sentiment especially in a rising interest rate cycle.

The US, European and most of the major regional markets in the Asia Pacific region extended their rebound for a second consecutive week with the US markets gaining over 5% while the European markets gained over 2.5%. However, the benchmark KLCI Index ended the week marginally lower at 1,546.76 points (-2.36 points or -0.15%) on continued profit taking.

Going forward, I am maintaining my view that the local stock market will continue consolidating until the next US Federal Reserve Open Market Committee meeting which is to held on 14-15 June 2022 as I don’t expect any major surprises in the remaining 1Q22 corporate results to be released next week.  

This will be followed by the next Bank Negara Monetary Policy Committee meeting that is to be held on 5-6 July 2022. With inflation remaining persistently high around their 40-year highs in the US and also rising in Europe, I expect the market to continue pricing in the effects of another potential 50 basis points increase in the Federal Funds Rate at the upcoming FOMC meeting in June 2022.

KEY SUPPORT LEVEL

The key support level for the KLCI continues to be 1,500 points while the 1,600-point level will remain the psychological barrier that the market will head towards in the event of a rebound.      

Separately, Malaysia’s bond market also extended its rebound for the second consecutive week as the yields for both the Malaysian Government Securities (MGS) and US Treasuries dipped further as investors bought back into the bonds on renewed confidence that the US Federal Reserve is not considering aggressive 75 basis points hike at their upcoming meeting.

Bond yields for both the 10-year US Treasuries (UST) and 10-year MGS yields eased slightly over the past week to 2.74% and 4.12% as at 27 May 2022.

The latest yield spreads between both countries’ 10-year bonds widened back to their highest in over two weeks at 158 basis points from 148 basis points last week.  

ECONOMY

The Department of Statistics Malaysia reported that the Consumer Price Index (CPI) in April 2022 rose by 2.3% and 0.2% on a year-on-year and month-on-month basis to 125.9 against 123.1 in April 2021.

The CPI continues to be driven by Food & Non-Alcoholic Beverages segment which registered a 4.1% year-on-year increase. The Transportation and Restaurant & Hotels segments also notched up gains of 3.0% and 3.2% respectively.

Core inflation rose 2.1% during the month. Selangor and Wilayah Persekutuan Putrajaya posted the highest CPI hikes among all the states in the country while Pahang, Sabah and Labuan had the lowest CPI increase.   

Prime Minister Datuk Seri Ismail Sabri said his proposal to upgrade Malaysia’s ties with Japan to comprehensive strategic partnership was well received by Japanese Prime Minister Fumio Kishida and both countries will further discuss on the outline to upgrade closer ties between both countries.

Malaysia and Japan upgraded their ties from an enhanced partnership to strategic partnership in 2015. 2020 also marks the 65th anniversary of Malaysia-Japan diplomatic ties and 40th year of the Look East Policy.   

CURRENCY

As expected, the Ringgit’s volatility against the US Dollar continues to ease for the second consecutive week after four consecutive weeks of declines against the greenback.

The Ringgit managed to claw back almost 9sen against the US Dollar over the past week to end at RM4.3780 / USD1.00 from RM4.3870 in the previous week.

In the light of the latest currency trading conditions, I am imputing a marginally more positive outlook for the Ringgit in the coming week and adjust my view of the trading band to between RM4.35 to RM4.40.

The next major move will only come closer towards the US Federal Reserve meeting in mid-June 2022.

However, the Ringgit experienced a bad week against all the major currencies and weakened significantly against the British Pound, Japanese Yen, Euro and Singapore Dollar at RM5.5311 / GBP1.00, RM3.4400 / JPY100, RM4.6996 / EUR1.00 and RM3.1987 / SGD1.00 respectively.  

POLITICS

Plantation Industries and Commodities Minister Datuk Zuraida Kamaruddin announced on 26 May 2022 that she is leaving Parti Pribumi Bersatu Malaysia (Bersatu) and will be joining Parti Bangsa Malaysia (PBM). In addition, she has also offered to resign from her Cabinet position. 

However, Prime Minister Datuk Seri Ismail Sabri said he will meet with Datuk Zuraida to discuss the future of her position in the Cabinet when he returns from his working visit in Japan.

Separately, PBM announced that it will make a formal announcement on her application to join the party after 7 June 2022 while Bersatu president Tan Sri Muhyiddin Yassin said his party had the right to nominate the ministerial replacement for Datuk Zuraida. – DagangNews.com

Manokaran Mottain has been an economist with a number of financial institutions is now managing his own firm, Rising Success Consultancy Sdn Bhd