The local stock market ended the first trading week of 2024 with a bang, with the local blue-chip benchmark index breaking out to close at a fresh 12-month high.
The local market ignored corrections on regional markets, which were led by tech stocks on valuation concerns, as the utility, construction, property and rubber glove sectors led gains on optimism over domestic infrastructure spending fuelling economic growth.
For the first week of the year, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) rallied 32.95 points, or 2.27 percent to 1,487.61, with most gains coming from YTL Power (+68sen), Tenaga (+46sen), YTL Corp (+33sen), Maybank (+17sen), CIMB (+15sen) and Axiata (+18sen).
Average daily traded volume last week surged to 5.88 billion shares, compared to 3.78 billion shares the previous week, while average daily traded value climbed to RM3.17 billion, against the RM2.34 billion average the previous week.
Last week's buying momentum in the local bourse could sustain in the early part of this week as investors take cue from the resilient US equity markets that closed higher last Friday despite continued easing in expectations for an interest rate cut in March. Profit taking interest could increase towards the weekend as investors take some of their investment gains off the table while waiting for the outcome of Taiwan's election this Saturday and China's reaction.
Despite weakness in the early trading hours after a stronger than expected December nonfarm payroll report, the US equity indices ended higher on Friday.
Nonetheless, major indices like Dow Jones, S&P 500 and Nasdaq Composite fell 0.59 per cent, 1.52 per cent and 3.25 per cent to 37,466.11, 4,697.24 and 14,524.07, respectively on a week-on-week basis as investors cashed in on their gains. The US nonfarm payroll report last Friday showed employers hired 216,000 workers in December, average hourly earnings increased 4.1 per cent year-on-year (YoY) while the unemployment rate of 3.7 per cent was unchanged from the prior month. Bloomberg consensus estimates pointed to a job growth of 175,000, average hourly earnings growth of 3.9 per cent and an unemployment rate of 3.8 per cent. The stronger than expected labour data has reduced the probability of a 25-basis point interest rate cut in the Federal Reserve's March meeting to 62.3 per cent from 73.4 per cent a week ago.
Continued strength in the US economic data could tilt expectations for a rate cut to May from March and hold sway over the USD index, which has been hovering around the 102-level since the beginning of this year.
Nonetheless, this should not derail expectations for the ringgit to strengthen towards RM4.25 against the USD by the end of this year, underpinned by the eventual cuts in the US interest rate and improvement in Malaysia's economy (anticipate a GDP growth of 5 per cent in 2024 versus forecast 4.0 per cent in 2023) as domestic activities gain momentum, exports rebound, tourist receipts surge, foreign investments rise and fiscal deficits head further south, supported by various reforms and revenue enhancing measures.
This should continue to attract net buying interest from foreign investors despite the short-term noises and propel the FBMKLCI towards the end-2024 target of 1,620.
That aside, Taiwan's election outcome this weekend is of particular interest as the Chinese President Xi Jinping has struck a stronger tone last week by saying China's reunification with Taiwan is inevitable. Recall that China has announced fresh sanctions on five American defence companies yesterday in a furious response to last month's US arms sale deal worth USD300mn with Taiwan to upgrade the island's tactical information system. The victory of a pro-independence party will heighten the ongoing tension between the US and China.
This Saturday, Taiwanese citizens will elect their new president and members of the Legislative Yuan.
Since the incumbent President Tsai Ing-wen of the pro-independence Democratic Progressive Party (DPP) will not be contesting due to term limits, all eyes will be on DPP's candidate Lai Ching-te, the current vice president of Taiwan who is leading in the opinion polls and regarded as a strong separatist by China. The other two candidates are Hou Yu-ih of the opposition party, the Kuomintang, and Ko Wen-je, chair and founder of the minor Taiwan People's Party.
On the economic front, China's trade data for December that will be released this Friday could provide some clues on Malaysia's export recovery prospects. Malaysia's November industrial production data this Thursday also will offer a glimpse of what to expect for the fourth quarter GDP. Meanwhile, the US is also due to announce its consumer price index for December on Thursday. Bloomberg consensus forecast is showing a slight uptick to 3.3 per cent YoY from 3.1 per cent YoY in November while the core CPI is expected to weaken to 3.8 per cent versus 4.0 per cent a month ago. The outcome will influence the rate cut narratives.
Technical Outlook
Bursa Malaysia shares stayed range bound in the first trading day of the year, as investors braced for upcoming economic data from the region for more leads on the likely trend for easing monetary policy.
The FBM KLCI eased 1.56 points to close at 1,453.10, after moving between early low of 1,446.36 and high of 1,453.56, as gainers led losers 512 to 463 on robust turnover of 4.91bn shares worth RM2.00bn.
Small-caps surged on Wednesday as investors returned to bargain-hunt, with the property (+3.9 per cent), healthcare (+3.4 per cent) and utility (+3 per cent) sectors leading gains, ignoring falls on regional markets led by tech stocks. The FBM KLCI climbed 9.27 points to close at 1,462.37, off an early low of 1,450.17 and high of 1,465.69, as gainers swarmed losers 715 to 352 on strong turnover totalling 5.63bn shares worth RM3.12bn.
Blue chips surged on Thursday, led by the utility, construction and property sectors, on investor optimism over domestic infrastructure spending to fuel economic growth. The FBM KLCI surged 14.89 points, or 1.02 percent, to end at a fresh 11-month high of 1,477.26, off an early low of 1,461.03, as gainers led losers 630 to 424 on robust turnover of 6.37bn shares worth RM3.82bn.
Resurgent buying interest in sectors deemed to benefit from infrastructure spending to boost domestic economic growth sustained momentum plays on Friday, lifting the blue-chip benchmark to test the 1,490-resistance level. The index added 10.35 points to settle at the day's high of 1,487.61, off an opening low of 1,476.85, as gainers bested losers 745 to 351 on strong trade totalling 6.62bn shares worth RM3.73bn.
Trading range for the blue-chip benchmark index last week expanded to 41.25 points, compared to the 10.62-point range the previous week, as it rose on the back of a three-day rally to end at a fresh 12-month high. For the week, the FBM-EMAS Index rose 273.52 points, or 2.53 percent to 11,097.22, while the FBM-Small Cap Index climbed 557.15 points, or 3.41 percent to 16,910.53.
Buy signals were triggered on the daily and weekly slow stochastics momentum indicators on the FBM KLCI following last week's strong breakout rally, suggesting further upside potential given the bullish technical momentum. The 14-day Relative Strength Index (RSI) indicator also staged a bullish hook-up, reinforced by the 14-week RSI indicator's hook-up to confirm the bullish momentum.
As for trend indicators, the daily Moving Average Convergence Divergence (MACD) trigger line spiked up sharply to issue a buy signal, with the weekly indicator's signal line also turning up to reinforce the strong uptrend. The +DI and -DI lines on the 14-day Directional Movement Index (DMI) trend indicator also crossed for a buy with a strong expansion, while the ADX line levelled off to neutralize the prior weak trend.
Conclusion
Last week's bullish breakout on the FBM KLCI, which rallied to close at a fresh 12-month high, has pivoted technical momentum and trend indicators into bullish mode, and was backed by strong follow-through buying momentum on the broader market, which supports further upside this week. Should the resurgent buying momentum sustain strong trading commitments from market players, interest in the construction, property, oil &gas, technology and utility sectors could pick up steam.
As for the index, a convincing breakout on strong buying momentum above the 1,490/1,500 resistance level, which restricted upside in Jan 2023, will grease upside towards next key hurdles at 1,520 and 1,550, prior to stalling for profit-taking. Key chart support at 1,450 is expected to prevent further correction towards better supports at 1,440 and 1,430, with 1,400/1,390 as stronger support platform.
As for technical stocks picks for this week, key banking, telcos, oil &; gas and semiconductor related counters such as AMBank, CIMB, Axiata, CelcomDigi, Bumi Armada, Velesto, Globetronics and Unisem are likely to attract buyers for a continuation in rotational and situational plays with more investors coming back into the market.
