WHILE the local blue-chip benchmark index surged upwards with a double-digit gain on the first trading day after the Chinese New Year holidays last Tuesday fuelled by strong buying interest in major banking stocks, most investors remained by the sidelines due to the weaker trading volumes and lacking positive domestic market leads.
Nonetheless, following a two-day consolidation, it managed to climb to a fresh 20-month high ahead of the weekend, as investors returned to bargain hunt banking, construction and oil and gas heavyweights on expectations for more development contracts and positive news flow ahead.
Week-on-week, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) rose 21.27 points, or 1.41 per cent, to 1,533.55, as gains on CIMB (22 sen), Tenaga (40 sen), Maybank (17 sen), Public Bank (6.0 sen), MISC (30 sen) and Petronas Chemicals (17 sen) overcame falls on YTL Corp (down 14 sen) and YTL Power International (down 23 sen).
Average daily traded volume last week improved marginally to 3.06 billion shares, compared to 2.89 billion shares the previous week, while average daily traded value rose to RM2.15 billion, against the RM1.89 billion average the previous week.
Strong buying interest from foreign investors with a net inflow of RM1.4 billion year-to-date, especially with continuous daily net inflow since the beginning of February, has succeeded in sustaining the recovery momentum in the FBMKLCI so far this year.
Anticipation of a stronger recovery in corporate earnings, undemanding valuation, stabilising domestic politics and cheap ringgit versus the US dollar could have been the key drivers for the strong buying interest.
The rising optimism that the US will avoid a recession this year despite the deceleration in economic activities and China's indications of strong measures to revitalise its slowing economy could have also bolstered expectations of positive spillover effects on key trading nations like Malaysia.
Nonetheless, these expectations could be dashed if the delay in the US monetary easing affects consumption amidst increasing household debts, dwindling savings and faltering income growth that will drag US private investments eventually.
By the same token, China too is dragging its feet on a broader stimulus and expectations are building up for more decisive and effective measures to be unveiled in the upcoming National People's Congress in March. Thus, externally, the focus this week could be on the US Federal Reserve's January meeting minutes and Bank of China's decision on loan prime rate.
Locally, the lower-than-expected fourth quarter (4Q) and 2023 economic growth of 3.0 per cent and 3.7 per cent YoY versus the Department of Statistics advanced estimate of 3.4 per cent and 3.8 per cent YoY, respectively could push the benchmark index into a consolidation mode temporarily while investors digest the outcome and try to draw a parallel with the 4Q results reporting season, which will gain momentum this week and conclude by the end of this month.
The fact that the economy contracted by 2.1 per cent QoQ on a seasonally adjusted basis due to external slowdown and weakness in private consumption, compared to a 2.6 per cent increase in the 3Q23, could trigger investors to be defensive while waiting for more evidence on improving external demand and resilient domestic expenditure to drive growth this year.
The weaker economic growth is expected to cause downward adjustments in brokers' forecasts, which are likely to fall at the "low to mid-range" of the government's official forecast of 4.0 per cent to 5.0 per cent.
Technical Outlook
The local benchmark index added double-digit gains on Tuesday, as strong buying interest in major banking stocks lifted it higher in line with firmer regional markets as investors awaited a U.S. inflation report that could shape Federal Reserve policy.
The FBM KLCI surged 19.09 points or 1.26 per cent to end at 1,531.37, off an early low of 1,512.63 and high of 1,533.16, as gainers edged losers 634 to 297 on total turnover of 2.1 billion shares worth RM2.04 billion.
Stocks slipped on Wednesday, copying regional weakness as investors pared back expectations for the pace and scale of interest rate cuts by the US Federal Reserve this year. The FBM KLCI fell 2.04 points to end at 1,529.33, off an early low of 1,521.79 and high of 1,530.95, as losers edged gainers 503 to 387 on total turnover of 2.8bn shares worth RM1.92 billion.
Blue chips stayed range bound on Thursday, with investors mostly sidelined following the Chinese New Year holidays amid lacking positive domestic market leads. The FBM KLCI slipped 0.95 points to close at 1,528.38, off an early high of 1,532.66 and low of 1,525.39, but gainers led losers 557 to 370 on higher turnover of 3.68 billion shares worth RM2.27 billion.
The blue-chip benchmark climbed to a fresh 20-month high ahead of the weekend, as investors returned in a more committed way to bargain hunt banking, construction and oil and gas heavyweights on expectations for more development contracts and positive news flow ahead.
The index rose 5.17 points to end Friday at 1,533.55, off a high of 1,534.53 and low of 1,529.30, as gainers led losers 553 to 450 on steady trade totalling 3.63bn shares worth RM2.36 billion.
Trading range for the blue-chip benchmark index last week expanded to 21.9 points, compared to the narrower 12.19-point range the previous week, after it broke away from consolidation and climbed up to chart a fresh 20-month high last Friday.
For the week, the FBM-EMAS Index added 160.24 points, or 1.42 per cent to 11,405.26, while the FBM-Small Cap Index climbed 384.29 points, or 2.29 per cent to 17,129.86, as small cap stocks bounced back on improving retail interest.
Given last Friday's firm closing on the FBM KLCI, the daily slow stochastics momentum indicator stayed overbought, while the weekly indicator inched deeper into overbought territory.
The 14-day Relative Strength Index (RSI) indicator is also officially overbought with a reading above 70, while the 14-week RSI indicator reinforced the overbought condition on its daily peer with a reading of 71.66.
As for trend indicators, the daily Moving Average Convergence Divergence (MACD) sustained its uptrend reading, with the weekly MACD expanding bullishly to strengthen the uptrend signal. The +DI and -DI lines on the 14-day Directional Movement Index (DMI) trend indicator expanded positively on an inclining ADX line, cementing a strong uptrend ahead.
Conclusion
Trend indicators on the FBM KLCI continued to strengthen after it climbed up to a fresh 20-month high last Friday, but accelerating overbought momentum conditions point to profit-taking consolidation, which is key to support a more sustainable uptrend going forward.
As such, it will be crucial for more positive domestic catalysts to sustain the uptrend, such as the proposed high-speed rail from KL to Singapore and the Johor/Singapore Special Economic Zone.
Meantime, with stronger-than-expected US wholesale inflation to further push expectations for a rate cut towards the later part of the year, investors are likely to stay put while assessing the latest corporate results coming from the US and locally.
Immediate overhead resistance for the index is still at 1,550, with stronger upside hurdles coming at 1,580 and 1,600. Key uptrend supports cushioning downside will be at 1,503, 1,490 and 1,473, the respective rising 30-day, 50-day and 100-day moving averages.
As for stocks picks this week, selected telco, oil and gas, gaming and semiconductor related counters such as Axiata, CelcomDigi, Wasco, Genting Bhd, Genting Malaysia, Globetronics and Inari Amertron should attract bargain hunters to return and accumulate for further upside going forward.