MARKET WRAP: WEEK ENDED 8 JULY‘11

WEEKLY HIGHLIGHTS
• The FBM KLCI edged up to close at a record high of 1,594.7 points for a gain of 0.7% for the week.
• Regional markets remained firm on expectations that the U.S. private sector job market has improved.
• Looking ahead, the local market is anticipated to move in tandem with overseas markets as investors continue to monitor the outlook for global economic activities.

STOCKMARKET COMMENTARY
After commencing the week on a mixed note, the local market moved higher amidst resilient gains in regional markets. Market sentiment was also lifted by a positive update on the government’s initiatives under the Economic Transformation Programme. The FBM KLCI rose to a record high of 1,594.7 points, up 0.7% for the week.

Average daily trading volume was sustained at 0.9 bil over the preceding week while daily turnover in value terms was also unchanged at RM1.7 bil over the same period.

On Wall Street, the Dow rose to a 2-month high of 12,719 points on Thursday on expectations that the U.S. labour market has improved. However, investors were subsequently discouraged by the release of weak non-farm jobs data on Friday, showing that only 18,000 jobs were created, comprising 57,000 private sector job gains and 39,000 public sector job losses. The Dow subsequently eased and closed at 12,657 points for a weekly gain of 0.6%. The broader-based S&P 500 Index rose by 0.3%to 1,344 points. The Nasdaq was up 1.6% to 2,860 points over the same period on gains in selected tech stocks.

In the U.S., the labour market weakened with non-farm jobs increasing at the slowest pace in nine months at 18,000 jobs in June from 25,000 jobs in May as the pace of hiring in the services sector continued to weaken for the second consecutive month. Meanwhile, the unemployment rate edged up to 9.2% from 9.1% over the same period. The Institute of Supply Management Non-Manufacturing Index, which gauges the health of the services sector, fell to 53.3 in June from 54.6 in May on lower new orders. However, the reading remains above 50, indicating that services activities continue to expand for the nineteenth consecutive month. Crude oil prices closed at US$96.20/brl to register a weekly gain of 1.3% due to reports of lower U.S. oil inventories.
On the local front, Bank Negara Malaysia kept the overnight policy rate (OPR)unchanged at 3.00% during its monetary policy meeting on 7th July 2011 on concerns that heightened uncertainties from global developments may pose downside risks to growth.

Malaysia’s export growth slowed to 5.4% in May from 11.1% in April on lower exports of electronics and selectedcommodities such as petroleum & LNG. Meanwhile, import growth moderated to 5.6% from 9.4% over the same period. As imports outpaced exports, the cumulative trade surplus for the first five months of 2011 narrowed by 9.0% to RM51.3 billion compared to the same period last year.

On a weekly basis, the Ringgit strengthened by 0.6% against the US$ to close at RM2.992 while on a year-to-date basis, the Ringgit appreciated by 2.3% against the greenback.Looking ahead, the local market is anticipated to remain supported by resilient economic growth and low real interest rates. However, investors will continue to monitor the outlook for the U.S. and global economic activities.

As at 8th July 2011, the local stock market is valued at a P/E of about 16.8x on 2011
earnings, which is comparable to its 10-year average P/E ratio of 16.7x. The local
market is also supported by a gross dividend yield of 3.8%, which exceeds the 10-year average of 3.6% and the 12-month fixed deposit rate of 3.15%.

FORTNIGHTLY REGIONAL MARKETS COMMENTARY
WEEKLY HIGHLIGHTS
• Regional markets remained firm on expectations that the U.S. private sector job market has improved.
• Regional economic activities continued to moderate while inflationary pressures continued to rise.
• Regional markets are anticipated to continue moving in tandem with global markets as investors monitor the outlook for global economic activities.

STOCKMARKET COMMENTARY
In North Asia, stock markets remained firm with the Korea and Japan markets registering weekly gains of 2.6% and 2.4% respectively. The Hang Seng China Enterprise Index rose by 1.4% for the week.

In South East Asia, the Thai market outperformed the region with a weekly gain of 4.5% following the decisive election victory of the Pheu Thai party. The Indonesia market rose by 2% to a record high of 4,004 points amid expectations that the central bank will not raise interest rates this week.

The Australian market closed 1.4% higher on gains in mining stocks following higher metal prices.China’s export growth slowed to 17.9% in June from 19.4% in May on lower exports to Japan and selected ASEAN countries. Meanwhile, import growth moderated to 19.3% from 28.4% over the same period. As imports grew by a larger margin than exports, China’s cumulative trade surplus for 1H2011 narrowed by 17.5% to US$46 bil compared to US$55.8 bil in the same period last year.

On the inflation front, China’s inflation rate rose to a 3-year high of 6.4% in June from 5.5% in May due to higher food and transportation costs. The People’s Bank of China raised the 1-year lending rate to by 25 basis points to 6.56% on 6th July 2011 to curb inflationary pressures.

Japan’s exports declined by 10.3% in May after contracting by 12.4% in April as exports to the U.S. and Europe weakened at a slower pace. Meanwhile, import growth rose to 12.3% from 9.0% over the same period. As imports grew by a larger margin than exports, Japan’s registered a trade deficit of US$11.9 bil in the first five months of 2011 compared to a surplus of US$29.1 bil in the same period last year.

As at 8th July 2011, the valuations of regional markets, as proxied by the MSCI Far East ex-Japan Index, is at a P/E of 12.5x on 2011 earnings, which is 20% lower than its 22-year average P/E ratio of 15.7x.