Caution as the equity and bond market sentiments remain jittery - Manokaran

WEEKLY MARKET ANALYSIS BY MANOKARAN MOTTAIN

The local stock market continued to rally for the third consecutive week to reach the psychological resistance of 1,500 points on the back of continued optimism that central banks will ease their interest rate hike cycle soon than expected.

The KLCI Index ended the week at 1,501.55 points (+9.32 points or +0.62%) after reaching a intra-week high of 1,507.71 points.

Once again, the gains were achieved on thin trading volumes and values as the average daily traded value remained below RM2.0 billion per day throughout the week. 

Meanwhile the bond yields for both the 10-year US Treasuries (UST) and 10-year MGS yields ended the week at higher at 2.83% and 3.93% respectively as bond traders took the opportunity to lock in some profits after three consecutive weeks of gains in the bond markets.

Selling in US Treasuries intensified after a stellar jobs report for July 2022 whereby non-farm payrolls increased by 528,000 during the month which more than double the market estimates of 250,000 jobs while the unemployment rate fell back to pre-pandemic levels to 3.5%.

This caused the yield spreads between both countries’ 10-year bonds to narrow by 11 basis points to 110 basis points.   

Meanwhile, the yield curve inversion between the US 2-year and 10-year Treasury notes continues into its 4th week with the US 2-year Treasury notes yield jumping to 3.21% from 2.89% last week.

This caused the yield inversion to widen to 38 basis points from 22 basis points last week which was last seen almost 22 years ago in 2000.   

Given the dynamic nature of the markets, I continue to believe we should exercise caution as the market sentiments in both the equity and bond markets remain jittery and can potentially make abrupt turns quickly.

The local stock market (KLCI Index) should remain hovering around the 1,500 points in the coming week as investors and traders await for listed corporates to release their 2Q2022 results and provide an outlook on the business and competitive landscape for the second half of the year. 

ECONOMY

Bank Negara Malaysia’s international reserves increased to US$109.2 billion as at 29 July 2022 from US$107 billion recorded two weeks earlier on 15 July 2022.

The reserves are sufficient to finance 5.8 months of imports of goods and services and is 1.1 times the total short term external debt.

The Parliament has passed the Sales Tax (Amendment) Bill 2022 which will see the imposition of a 10% tax on imported low-value goods that are sold by foreign sellers.

The price threshold of low-value goods is below RM500. Deputy Finance Minister I Datuk Mohd Shahar Abdullah said the federal government expects to collect around RM200 million from the sales tax which is expected to be implemented next year.

Mass Rapid Transit Corporation Sdn Bhd (MRT Corp) said the open tender process for the 51km MRT3 Circle Line Project is on track and expects the construction cost of MRT3 to be comparable with the MRT Putrajaya line.

While the deadline for tender submissions for CMC301 package remains unchanged on 30 August 2022, the technical and tender submissions for the CMC302 and CMC303 packages had been extended to 30 September 2022.  

Joint venture entities HSS Integrated Sdn Bhd and HSS Engineering Sdn Bhd have been appointed as the MRT3 Project Management Consultant for a contract worth RM997.9 million.

Kumpulan Wang Persaraan (Diperbadankan) (KWAP) intends to increase its private investments (private equity, infrastructure and real estate) in order to achieve a targeted 7% returns per annum by 2025 from the current 6%.

CEO Nik Amlizan Mohamed said the fund would be rebalancing its investment portfolio to 80% public investment and 20% private investment from the current composition of 90% and 10% respectively in order to take advantage of the double-digit growth in returns from the private market space. 

Minister in the Prime Minister’s Department (Parliament and Law) Datuk Seri Wan Junaidi Tuanku Jaafar disclosed that a total of 17,599 persons have been reportedly been declared bankrupt between 2020 and May 2022 with men accounting for 73.7% (or 12,970) of the cases.

The highest number of bankruptcies was in the age group of between 35-44 years with 6.681 cases followed by 45-54 years (4,819 cases), 25-34 years (3,171 cases), above 55 years (2,823 cases) and youths aged 25 & below (46 cases). 

CURRENCY

The Ringgit remained virtually unchanged against the US Dollar at RM4.45 / USD1.00 for a second consecutive week.

This is expected as the Ringgit looks set to remain in a consolidation mode against the US Dollar until the next BNM Monetary Policy Committee (MPC) meeting on 7-8 September 2022 and the following US FOMC meeting on 20-21 September 2022.

With no major catalyst in sight for the following week, I am maintaining the expected trading band for the Ringgit against the US Dollar at RM4.42 to RM4.48.     

The Ringgit generally ended weaker against almost all of the other major currencies for a third consecutive week with the exception of the British Pound.

The Ringgit made marginal gains against the British Pound at RM5.4000 / GBP1.00 (+1.9sen). However, it lost ground against the Japanese Yen at RM3,3410 RM3.3360 / JPY100 (-0.5sen), the Singapore Dollar at RM3.2350 / SGD1.00 (-1.1sen) which is also a new record low and the Euro at RM4.5514 / EUR1.00 (-0.1sen).  – 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