Upswing in sentiment towards equities, KLCI expected to range 1,485 to 1,450 points - Manokaran

WEEKLY MARKET ANALYSIS BY MANOKARAN MOTTAIN

I am sanguine over the recent Federal Government ministerial cabinet re-shuffle.

It is encouraging to see experienced hands like Datuk Seri Dzulkefly Ahmad, Gobind Singh Deo and M Kulasegaran returning to the cabinet as the Ministry of Health, Ministry of Digital and Deputy Minister of Law and Institutional Reform respectively.

In addition, I also welcome the appointment of Datuk Seri Amir Hamzah Azizan as the second Finance Minister as his vast experience in the corporate sector could potentially initiate many improvements to the Ministry.

We have seen him successfully helm eminent companies such as the Employees Provident Fund (EPF), Tenaga Nasional and companies within the Petronas Group such as Petronas Dagangan & MISC.

The swing in sentiment towards equities following the US Federal Reserve’s latest Federal Open Market Committee (FOMC) meeting helped to propel the KLCI past its 1,450 point psychological barrier to end the week at 1,462.45 points (+20.48 points or +1.42%).

The upswing in sentiment caused trading activities on the market to swell to RM2.68 billion per day last week from RM1.93 billion per day in the previous week.

Given the current buoyant sentiments, it significantly raises the possibility of window dressing activities towards the last trading week of the year. I am upgrading my KLCI outlook for the coming week to 1,485 points and 1,450 points for the coming week.     

US Treasury yields fell to their lowest level since August 2023 as bond investors and traders adjust their positions for potential Federal Reserve interest rate cuts in early 2024.

This came after the US Federal Reserve held the Federal Funds Rate (FFR) at the 5.25% - 5.50% for the third consecutive FOMC meeting on 12-13 December 2023 and indicated that it could potentially cut interest rates up to three (3) times next year as both the consumer price and producer price indices have indicated that inflationary pressures have eased.

Coming back to Malaysia, I believe that the Overnight Policy Rate is likely to be maintained at 3.00% throughout 2024 as it is much lower than the FFR by 2.25%-2.50% and remains accommodative to economic growth unlike the FFR which is currently at restrictive levels. 

UST 10-year yields fell by a massive 31 basis points to 3.92% last week caused the negative yield differential to narrow to just 17 basis points against the local 10-year the MGS yield which surprisingly rose slightly by two (2) basis points to 3.75%.  

I expect both yields to eventually converge and eliminate the negative yield position over the course of 2024 but it is likely to only happen when the US Federal Reserve starts cutting rates next year.   

The Ringgit’s performance was mixed over the week as it only gained against the US Dollar at RM4.6680 (-0.4sen) due to the US Federal Reserve signalling an end to its interest rate upcycle but weakened against other currencies especially the Euro at RM5.0253 (+7.12sen) and Pound Sterling at RM5.9736 (+9.12sen) as the European Central Bank maintains its hawkish tone on interest rates.

In the meantime, the Ringgit also lost ground to the Singapore Dollar at RM3.5207 (+3.07sen).

I expect the currency markets to consolidate around the current levels till the end of the year and am maintaining my USD-MYR trading range at RM4.62 – RM4.72 till the end of 2023.- DagangNews.com