FBMKLCI Could Advance Further in Anticipation of Window Dressing

Local stocks managed to bounce back last week and more than erased the previous week’s weakness, even as investors largely remained cautious ahead of crucial U.S. inflation data and the final U.S. Federal Reserve meeting of the year. Healthcare, oil & gas, utility and technology heavyweights led gains, as investors returned to bargain hunt on optimism over the US Federal Reserve’s guidance to end its rate hike campaign and pivot towards interest rate cuts next year. The local market mirrored strength in global markets ahead of the weekend, as investors start to price in recovery given the outlook for a soft landing for the US economy.

Week-on-week, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) recouped 20.48 points, or 1.42 percent to 1,462.45, with gains in Public Bank (+7sen), Petronas Gas (+RM1.04), TM (+26sen), CIMB (+7sen), Press Metals Holdings (+15sen) and Sime Darby Plantations (+13sen) offsetting falls on Maybank (-4sen), MrDIY (-5sen) and KLK (-12sen). Average daily traded volume last week increased to 3.78 billion shares, compared to 3.1 billion shares the previous week, while average daily traded value climbed to RM2.69 billion, against the RM1.93 billion average the previous week.

The FBMKLCI’s promising recovery last week is expected to spillover this week as investors plough ahead in anticipation of year-end window dressing activities, potentially driven by local institutional funds that may make use of the positive momentum to gloss up their investment portfolios. Foreign interest was also visible towards the tail end of last week. The likelihood of an increase in foreign net buying has increased due to the fed's dovish guidance and indications that the US interest rate will start sliding from next year onwards to reach just over 2% level by 2026 versus 5.25% to 5.50% currently. This should weaken the USD and work favourably for Ringgit.

Foreigners are expected to seize the opportunity and invest in Malaysia to tap the economic/earnings growth prospects vis-à-vis its compelling valuation and currency appreciation potential. A strong indication that political stability will remain until the term expires in 2027 is another crucial selling point. Thus, well-managed and undervalued blue chips are expected to be foreigners' key attraction given their relatively high market capitalisation, focus on sustainable development and conformity to best practices.

Banking sector that has the largest weightage on the FBMKLCI could feature prominently as most of them are undervalued vis-à-vis their growth potential arising from the improved domestic activities, which are backed by the government initiatives, a strong labour market, robust private consumption and investment, and a stable interest rate environment. The expected launch of megaprojects, green initiatives, and fundraising exercises next year will add to the improved outlook. Buy CIMB (TP:RM6.60), HLBANK (TP:RM21.60), AMBANK (TP:RM4.30) and ABMB (TP:RM3.80).

That aside, Malaysia’s November trade and inflation data are due this week. Malaysia’s total trade has contracted by 8% YoY to RM2.2 trillion in the first 10 months of this year due to a similar pace of weakness in exports and imports. Nevertheless, the rate of decline in monthly exports and imports has reduced from mostly mid-teens to a single digit in October. While trade numbers are expected to remain in the negative territory for 2023, any signs of continuous narrowing in the pace of contraction or growth in the remaining two months will be consistent with the positive outlook next year as China tries to revive its economy, the US avoids a hard landing and the proliferation of new technologies boost demand for the Electrical and Electronics (E&E) products. The E&E sector contributed 45.4% of Malaysia’s exports in 2022 and mostly consisted of semiconductor chips. Meanwhile, consensus forecast is for the consumer price index to remain subdued at 1.7% YoY versus 1.8% YoY in October.

Source: TA Research - 18 Dec 2023