by MIN SHEN/ TMR PIC
LOCAL equities are expected to continue their upward momentum in the near term albeit with a limited upside, as investor sentiment remains cautious following seemingly positive external developments.
The FTSE Bursa Malaysia KLCI (FBM KLCI) closed 0.37% or 6.14 points higher at 1,655.47 yesterday, in line with Asian and US markets, after US stocks capped off their best week since last November.
Local stocks have climbed from a low of circa 1,598.32 in the last week of May, to hover within the 1,644 to 1,655 range so far this month.
“We see a potential upside of up to 1,675 for this week. Beyond that, it’s likely that valuations will become stretched again.
“It is rare for the FBM KLCI to make a dash beyond the implied level of valuation at 1,675. It is done only once or twice over the past 10 years,” Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew told The Malaysian Reserve.
The FBM KLCI bounced between 1,651.85 and 1,656 during the day, with a turnover of 2.28 billion shares valued at RM1.79 billion. Market breadth was positive as gainers outpaced losers 613 to 276, while 350 counters were unchanged.
Top active stocks included Ekovest Bhd, Bumi Armada Bhd, Iskandar Waterfront City Bhd and AirAsia X Bhd.
Among the heavyweights, Malayan Banking Bhd rose five sen to RM9.04 and Public Bank Bhd added eight sen to RM23.50, while Tenaga Nasional Bhd and Petronas Chemicals Group Bhd both fell two sen to RM12.76 and RM8.38 respectively.
Asian markets rallied yesterday after US President Donald Trump dropped his plans to impose trade tariffs on Mexico, resulting in the Mexican peso to soar the most in nearly one year after the US-Mexico agreement was revealed last Friday.
The MSCI Emerging Market Index surged 1.1% to its highest in a month on the back of the biggest jump in over 10 weeks, while US equity futures posted slight gains.
As at press time, South Korea’s Kospi Index was up 1.31%, Singapore’s Straits Times Index gained 0.69% and Indonesia’s Jakarta Stock Exchange Composite Index added 1.3%.
Hong Kong’s Hang Seng Composite Index climbed 2.18%.
On the home front, MIDF Amanah Investment Bank Bhd noted that domestic equities are also expected to continue seeing foreign buying as non- Malaysian investors bought RM350 million net of local stocks last week.
This is seven times more compared to the amount acquired the week before, the research firm said in a note yesterday.
In addition to the US-Mexico trade settlement, investor sentiment is likely to be buoyed by expectations for interest rate cuts by the US Federal Reserve (Fed) after data from the US non-farm payrolls showed job creation fell sharply in May, implying growing caution among businesses.
“The whole premise driving markets these days is that the Fed is poised to lower interest rates. That’s typically seen when the Fed ends its rate hike cycle. Initially, the reaction is positive and could last about a month or two,” Pong said.
However, he said “eventually the reality will set in” as a Fed rate cut under the present circumstances is a sign of a slowing economy and possibly a US recession.
“The year-on-year net change in the US jobs report shows that it’s starting to fall in the manner that it did just a few months before the technology bubble recession in 2001,” Pong cautioned.
Following the trade ceasefire in Mexico, investors can now look forward to the G20 summit later this month, where Trump and Chinese President Xi Jinping will meet.
The US consumer price index, a key indicator of US inflation, is due tomorrow, while China and the US will unveil industrial production and retail sales data on Friday.
In Asia, all eyes will be on Hong Kong after its pro-Beijing leader Carrie Lam said she remains committed to passing a proposed law easing extraditions to China despite over one million people marching in protest last Sunday against the legislation.