The local stock market ended the final trading week of 2023 on a whimper, with the lack of local market leads and most investors away for the Christmas and New Year holiday break forcing stocks into extended profit-taking consolidation phase.
A mild window-dressing recovery attempt mid-week failed to sustain, as the absence of follow-through buying commitments on the last trading day of the year sparked a profit-taking pullback.
On the last week for 2023, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) ended flat at 1,454.66 (+0.28), as gains in Public Bank (+4sen), CIMB (+5sen) and Tenaga (+5sen) were offset by falls on Petronas Chemicals (-6sen), PPB Group (-22sen) and Axiata (-3sen).
Average daily traded volume last week recovered mildly to 3.78 billion shares, compared to 3.68 billion shares the previous week, while average daily traded value decreased to RM2.34 billion, against the RM2.41 billion average the previous week.
No major economic data is due this week on the local front apart from the S&P Global Malaysia Purchasing Managers' Index (PMI) Manufacturing for December, which is expected to remain below the expansion threshold of 50.
In the absence of major leads locally, investors will be watching closely external events and economic data for direction this week after the FBMKLCI's disappointing performance last week.
In the US, the Federal Reserve's meeting minutes, purchasing managers' index (PMI) and labour data for December are due this week while China also will announce its PMI data.
A gradual decline in nonfarm payrolls and average hourly earnings growth in the US will be construed as continued easing of the US labour market and viewed positively.
This data affects inflation and the Fed's monetary policy decision and has bearing on market's expectations for interest rate cuts in 2024.
The CME Group's FedWatch Tool indicates a strong probability of 72.8 per cent for a 25-basis point cut in this March meeting.
Continued easing in the US monetary policy is a vital driver for ringgit's appreciation against the USD and a revival in foreign net inflows into the Malaysian market this year.
On the other hand, any improvement in China's PMI is a good sign for Malaysia's exports, which have contracted last year.
It will solidify consensus expectations of a stronger economic growth for Malaysia in 2024 versus forecast 4.0 per cent last year.
We are already witnessing robust tourist arrivals that will complement the stronger outlook as the domestic political stability pave way for greater reforms and vibrant economic activities.
Exports and domestic activities are also expected to receive further boost from the "China Plus One" strategy and Malaysia's long-term policies that are drawing in significant foreign direct investments and inducing higher domestic direct investments.
As such, 2024 could be a better year for the FBMKLCI with the stronger economy and reforms underpinning revival in corporate earnings (consensus forecast is 11.7 per cent in 2024 versus 3.2 per cent in 2023) and foreign interest (19.6 per cent).
The end-2024 target for the benchmark index is 1,620 based on a CY25 price-to-earnings ratio of 13x versus a 5-year (2019-2023) average of 17.5x.
Meanwhile, downside risks could arise from the geopolitical tension, especially if the ongoing Israel-Hamas conflict escalates and leads to disruption in the supply chain and higher oil prices that will increase inflation and affect monetary easing decisions, a US economic recession, and a slower pickup in China's economy.
Key investment themes for 2024 would be:
1) Digital Economy (Telekom Malaysia),
2) Domestic Spending (AEON Co M Bhd, Gamuda Bhd, Sime Property Bhd, Sunway Bhd & Westports Holdings Bhd),
3) Foreign Buying of Undervalued Blue Chips (CIMB Holdings Bhd, Hong Leong Bank Bhd & MISC Bhd)
4) Green Investment (Malakoff Corp Bhd & Tenaga Nasional Bhd),
5) Recovery Plays (Duopharma Biotech Bhd & Inari Amertron Bhd)
6) Tourism Plays (Malaysia Airports Holdings Bhd & Focus Point Holdings Bhd).
Technical Outlook
Bursa Malaysia shares drifted sideways in listless trade on Tuesday, given the lack of local market leads and with most investors away for the weekend Christmas and Boxing Day holidays.
The FBM KLCI dipped 3.6 points to end at the day's low of 1,450.78, off an early high of 1,456.66, as losers edged gainers 426 to 397 on moderate turnover of 2.93bn shares worth RM1.97billion.
Stocks recovered on mild bargain hunting Wednesday, as more investors returned to nibble with most markets in the region resuming trade after the long Christmas and Boxing Day holiday break.
The FBM KLCI gained 3.44 points to close at 1,454.22, after moving between early low of 1,452.08 and high of 1,455.44, as gainers led losers 468 to 380 on improving turnover of 3.29 billion shares worth RM2.06 billion.
Blue chips were traded moderately higher on Thursday, supported by mild window-dressing interest while the broader market staged consolidation.
The FBM KLCI added 3.19 points to close at 1,457.41, off an opening low of 1,453.06 and high of 1,459.1, as gainers led losers 486 to 404 on robust trade totalling 4.23bn shares worth RM2.39 bilion.
The broader local market extended range bound trade during the last trading day of the year, while index heavyweight blue chips also staged consolidation given the absence of late window-dressing interest, and with most investors sidelined for the New Year holiday period.
The index slid 2.75 points on Friday to settle at the day's low of 1,454.66, off an earlier high of 1,461.40, as losers beat gainers 486 to 431 on higher turnover totalling 4.66bn shares worth RM2.96bn.
Trading range for the blue-chip benchmark index last week shrank to 10.62 points, compared to the 18.8-point range the previous week, after it failed to challenge the 1,470 immediate resistance level on the last trading day of the year, given the absence of window-dressing support.
For the week, the FBM-EMAS Index was up 3.78 points, or 0.03 percent to 10,823.70, while the FBM-Small Cap Index gained 68.58 points, or 0.42 percent to 16,353.38.
The profit-taking dip on the last trading day of 2023 forced a hook-down sell signal on the daily and weekly slow stochastics momentum indicator on the FBM KLCI, suggesting extension of profit-taking consolidation.
The 14-day Relative Strength Index (RSI) indicator also hooked back down, with the 14-week RSI indicator mirroring the daily hook-down to confirm weak momentum. On trend indicators, the daily Moving Average Convergence Divergence (MACD) trigger line turned lower to issue a mild sell signal, while the weekly indicator's signal line levelled further to imply easing uptrend.
The +DI and -DI lines on the 14-day Directional Movement Index (DMI) trend indicator remain poised for a negative crossover, but the ADX line declined further to suggest a weak trend.
Conclusion
The disappointing lack of strong window-dressing interest during the last trading week of 2023 forced technical momentum indicators on the FBM KLCI back into bearish mode, which suggests potential for further profit-taking consolidation.
Nevertheless, if investors do return to the local market from the year-end holidays in a big way, the situation may reverse positively and encourage broader participation from market players who have been largely sidelined recently. Meantime, externally, with optimism for a pivot to interest rate cuts by the US Federal Reserve this year in anticipation of a soft landing for the US economy, the positive tone should filter through to shore up domestic market sentiment.
On the index, it remains crucial that the 1,450 immediate support level hold to prevent further correction potential towards better supports at 1,440 and 1,430, while 1,400/1,390 should act as stronger support.
For this new year, a breakout confirmation above the 1,470 immediate resistance is key to encourage further gain towards the 1,490/1,500 level, with next upside hurdles seen at 1,520 and 1,550 going forward.
Chart wise, key gaming, construction, property and oil & gas related counters such as Genting Bhd, Genting Malaysia, Gamuda, Sunway Construction, MRCB, UEM Sunrise, Bumi Armada and Velesto could be favoured for rotation and situational plays this week as investors gradually return from the year-end holidays.