Following a brief profit-taking consolidation as investors await stronger evidence of easing inflation on global economies before committing fresh positions, the local blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) extended uptrend to eventually close at a fresh three-year high last Friday, lifted by technology and utility heavyweights on optimism softer US consumer inflation will encourage interest rate cuts later this year. The healthcare and technology sectors surged, fuelling strong rallies in rubber glove and technology stocks on spillover demand optimism after the US proposed sharp tariff hikes on China’s healthcare, glove and technology exports.

For the week, the local blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) rose 15.95 points or one percent, to 1,616.62, as gains in YTL Corp (+42sen), YTL Power (+42sen), Tenaga (+20sen) and Genting Berhad (+18sen) overcame falls in Press Metals (-14sen), CelcomDigi (-5sen) and Petronas Dagangan (-56sen). Average daily traded volume last week surged to 5.74 billion shares as compared to 4.91 billion shares the previous week, as trading activity in lower-priced small cap and ACE Market stocks picked up significantly, while average daily traded value climbed to RM3.95 billion, against the RM3.38 billion average the previous week.

Investors, especially foreign funds, continued to plough in the local equity market last week driven by renewed interest rate cut expectations in the US after the April inflation rose by a softer-than-expected 0.3% MoM and 3.4% YoY, and Malaysia’s 1Q24 GDP grew at a stronger-than-expected rate of 4.2% YoY versus the Department of Statistics advanced estimate of 3.9% YoY. China added to the upbeat sentiment after it announced a massive funding of USD41bn to buy unsold homes and repurchase ‘idle’ land to rescue its property sector and lift the broader economy. Its central bank added icing on the cake by removing the national lower limit on mortgage rates for first and second homes while cutting downpayment ratios for first- and second-time buyers to 15% and 25%, from 20% and 30%, previously. These moves and along with a stronger-than-expected April industrial production, restored confidence about China’s economic growth prospects and buffered concerns about the softer retail sales last month.

Looking ahead, the benchmark FBMKLCI is expected to retain its gain so far while moving sideways ahead of the Wesak Day public holiday this Wednesday, same day the US Federal Reserve will reveal its meeting minutes for May. Positive market sentiment is expected to persist, supported by Malaysia’s better-than-expected economic expansion and the likely improvement in its April trade data that will be revealed later today. These statistics should trigger hopes for similar improvements in the ongoing 1Q24 results reporting season that will be concluded this month. Of the 105 companies under coverage, only 29 of them have reported results so far with 24%, 48% and 28% below, within and above our expectations, respectively. The consumer sector outperformed so far with CARLBG (Buy, TP: RM24.50), HEIM (Buy, TP: RM29.20), AEON (Buy, TP: RM1.68) and F&N (Hold, TP: RM34.50) reporting better than expected results while Technology sector underperformed with weaker than expected results from CORAZA (Buy, TP: RM0.69), ELSOFT (Hold, TP: RM0.58) and MPI (Under Review, TP: RM36.20).

On GDP, all economic sectors reported better growth last quarter with the services and manufacturing sectors driving the overall performance. On the demand side, it was led by the private consumption expenditure and gross fixed capital formation. Subsequently, we have maintained our economic growth forecast of 4.7% for the year as the 4.2% expansion in the 1Q did not deviate much from our forecast 4.3% YoY. The growth will be driven by resilient domestic demand, supported by strong labour market, tourist arrivals, public spending and consumption, and improving exports, which are benefitting from higher foreign direct investments and the US-China trade war. In our view, the negative effects of more subsidy cuts, probably in 2H24, on consumption can be minimised through governments handouts to the needy, flexible withdrawals from EPF account three and a hike in civil servant salaries this December. The likely increase in inflation after all is not totally bad as it should provide more clout for corporates to raise prices and increase profits. (Please refer to economic report “Off to a Good Start in 2024” for a complete update on 1Q24 GDP)

Source: TA Research - 20 May 2024