The local blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) went through choppy trade last week, as optimism over the strong ringgit and further interest rate cuts by key global central bankers encouraging more foreign fund inflows were offset by traders taking profits on recent strong gains linked to the Johor-Singapore Special Economic Zone following attractive government tax incentives. Key banking heavyweights led falls ahead of the weekend, as traders reduced positions and switched focus to the extremely strong North Asian stock markets fuelled by the recent strong bout of stimulus from China. This was reflected in foreign funds turning huge net sellers again last week for the first time in seven weeks.

For the week, the FBM KLCI slipped 8.73 points, or 0.52 percent to 1,660.09, as gains on Mr. DIY (+9sen) and Petronas Chemicals (+22sen) were overshadowed by falls in YTL Corp (-23sen), Petronas Dagangan (-RM1.08), YTL Power (-18sen) and Sunway Berhad (-14sen). Average daily traded volume last week was lower at 3.32 billion shares versus 3.42 billion shares the previous week, while average daily traded value dwindled to RM3.01 billion, against the RM4.04 billion average the previous week.

Despite the near-term weakness caused by profit taking activities, we are confident buying momentum will resume in the final quarter driven by positive expectations about Malaysia’s Budget 2025 that will be tabled on 18 October, window dressing activities as funds prepare to close their books before the year end, strong likelihood of the US Federal Reserve maintaining its dovish stance and China turning on its stimulus tap. On stock picks for this week, key banking, telco and rubber glove counters should again attract bargain hunters for recovery upside, following recent profit-taking corrections as longer-term upside potential remain bright.

Last Friday’s announcement showed the expansion in the US personal consumption expenditure index has soften to 2.2% YoY, lower than forecast 2.3% and July’s 2.5%. Meanwhile, the Fed’s favourite core PCE that exclude food and energy came within expectations at 2.7% YoY but was slightly above the previous month’s 2.6% YoY. The inflation data is not expected to deter the Fed officials’ confidence in achieving the 2% inflation target next year as their focus now have switched to the softening labour market. Thus, investors will be watching closely the August nonfarm payroll, unemployment rate and wage growth numbers this week, which will influence Fed’s guidance for another 50-basis point cut this year and a one percentage point cut next year. Consensus is looking at jobs and average hourly earnings easing to 140,000 and 3.7% YoY from 142,000 and 3.8% in July, respectively while unemployment rate sustaining at 4.2%.

In China, its industrial profits swung back to a sharp contraction in August for their biggest decline this year. Data released last Friday showed profits plunged 17.8% YoY following a 4.1% increase in July, while earnings rose at slower 0.5% pace in the first eight months compared with 3.6% growth in the January-July period. It adds to a recent spate of weak data that point to mounting pressure on the economy and build expectations for more fiscal interventions soon after the Bank of China announced a slew of monetary measures last week to support credit expansion and economic growth. Besides, consensus is expecting a slight improvement in the September purchasing managers’ indices that will be released today that could keep recovery hopes alive.

Source: TA Research - 30 Sept 2024