Trading in mid & small caps counters rose by 6.3% to RM2.04 bilion - Manokaran

WEEKLY MARKET ANALYSIS BY MANOKARAN MOTTAIN

THE benchmark KLCI Index edged lower last week to 1,497.55 points (-2.78 points or -0.18%) due to cautious trading among the investors and traders amid the long holiday weekend.

Nevertheless, we noted that trading activities picked up especially among the mid and small caps as the average daily value traded rose by 6.3% over the past week to RM2.04 billion per day, which is 7.5% higher than its past 100-day average daily trading value of RM1.90 billion.

In the bond market, US bond yields rose on some mild profit taking as traders and investors await the outcome of the Federal Reserve Open Market Committee (FOMC) meeting on 31 January 2023 – 1 February 2023.

The core personal consumption price expenditures index rose by 4.4% year-on-year (y-o-y) in December 2022 from 4.7% in November 2022. This was in line with economists’ expectations. In addition, the US GDP in 4Q2022 grew at 2.9% y-o-y which was slightly above the market consensus of 2.8%.   

The 10-year US Treasury (UST) yields rose by 3 basis points last week to 3.51% from 3.48%. This reduced the total yield gains over the past 22 weeks to 47 basis points.   

The UST 2-year yields similarly rose by 3 basis points to 4.21% from last Friday’s close of 4.18%. The yield curve inversion between the UST 2-year and 10-year notes entered its 29th consecutive week with yield spreads maintaining at -70 basis points. The long-term average of the yield spread for both UST is +0.92% or +92 basis points.   

As expected, the local bond market experienced profit taking last week after surging sharply before the Chinese New Year break. Yields for the 10-year MGS bond yields rose by 5 basis points to 3.79% last Friday. The latest result widened the yield spreads between both countries’ 10-year bonds to 28 basis points.  

ECONOMICS

The Department of Statistics Malaysia disclosed that Malaysia’s total trade in 2022 reached RM2.8 trillion as Malaysia’s total trade for December 2022 amounted to RM236.0 billion with exports rising 6.0% y-o-y to RM131.9 billion while imports rose 12.0% y-o-y to RM104.1 billion.

Most states in the country recorded higher exports such as Johor (+RM4.3 billion), Sarawak (+RM2.2 billion), Selangor (+RM1.4 billion), Labuan (+RM1.4 billion), Negeri Sembilan (+RM264.1 million), Perak (+RM230.1 million), and Kedah (+RM184.0 million).

In a separate development, Malaysia’s export and import unit value indices showed a decline of 2.8% in December 2022, with exports falling to 144.5 points from 148.7 points in November 2022, while imports fell to 129.5 points from 133.2 points. The decline in export values was attributed to falls in the mineral fuels (-8.6%), machinery and transport equipment (-1.3%) and miscellaneous manufactured articles (-1.1%) indices.  

Meanwhile the import unit value index fell due to declines in the animal, vegetable oils and fats (-10.0%), mineral fuels (-6.9%) and machinery and transport equipment (-2.9%) indices. Nevertheless, on a year-on-year basis, both the import unit value and volume indices expanded by 6.0% and 5.8% respectively.

CURRENCY

The Ringgit rose against the US Dollar for the third consecutive week gaining another 1% to end the week at RM4.2410 RM4.2829 / USD1.00 (-4.2sen) as foreign investors continued to switch out of the Dollar into other currencies ahead in anticipation of a downshift of the interest rate hike by the US Federal Reserve.     

The Ringgit was on a tear against all the other major currencies over the past week. The local currency gained against all of them. The Ringgit ended the weak against the Singapore Dollar at  RM3.2318 / SGD1.00 (-1.7sen), the Japanese Yen at RM3.2630 / JPY100 (-1.8sen), the Euro at RM4.6104 / EUR1.00 (-4.8sen) and the British Pound at RM5.2603 / GBP1.00 (-4.4sen).  

MY OPINION

The market remains generally buoyant even though it did not surpass the 1,500-point level last week. The underlying strength of the market is demonstrated in the rising trading volume and value per day.

Therefore, it is only a matter of time before the market will re-test the 1,500 points psychological barrier before attempting to challenge the next resistance level at 1,520 points. The market is likely to remain range bound within a +/- 20-point range until the re-tabling of the Budget 2023 on 24 February 2023.

Last week’s aggressive buying into the bonds ended as the bond market braces for the upcoming interest rate decision by the US Federal Reserve.

The yield spreads between our local 10-year MGS yields and 10-year US Treasury Bills remains razor thin at 28 basis points, hence I am maintaining my view that there is limited room for the yields of the MGS to drop a lot further from the current levels.

In the currency market, the direction of the Ringgit against the US Dollar will very much be dependent on the result of the Federal Reserve Open Market Committee (FOMC) meeting on 31 January 2023 – 1 February 2023 as the currency market has already more or less fully factored in a 25 basis points hike to the Federal Funds Rate (FFR).

However, if the US FOMC increases the FFR by 50 basis points, we may see strength returning back to the US Dollar.

I am adjusting my view that the Ringgit will trade between RM4.20 and RM4.30 against the US Dollar in the coming week.

In addition, the European Central Bank (ECB) will also be announcing its interest rate decision on 2 February 2023 with the market generally expecting a 50-basis points hike.

As with the US Dollar, the Euro has already strengthened against other currencies to reflect the impending rate hike and the currency market will be looking towards the outlook by the ECB.  - DagangNews.com

Manokaran Mottain has been an economist with a number of financial institutions is now managing his own firm, Rising Success Consultancy Sdn Bhd