Market Commentary for the week ended 19 September 2008

STOCKMARKET COMMENTARY

The sell-down of global and regional markets following the U.S. financial crisis caused the KLCI to fall below 1,000 points for the first time in two years on Thursday. However, buying of index stocks helped the KLCI to close at 1,025.7 points and register a decline of 1.8% for the week.

Average daily trading volume increased to 0.4 billion units from 0.3 billion units over the week while average trading value rose to RM1 billion from RM0.8 billion in the preceding week.

On Wall Street, the Dow fell to a 34-month low of 10,459 points on Wednesday following the solvency crisis of major U.S. financial institutions. However, share prices recovered on Thursday and Friday after the U.S. government unveiled plans to spend up to US$700 billion to buy troubled mortgage-related assets. The Dow closed 0.3% lower at 11,388 points for the week. The Nasdaq was 0.6% higher at 2,274 points over the week.

At the Federal Open Market Committee (FOMC) meeting on 16th September 2008, the Federal Reserve kept the Federal funds rate unchanged at 2% and expressed its concerns over slower economic growth and elevated inflationary expectations. Lower energy prices helped the U.S. inflation rate to ease to 5.4% in August from 5.6% in July while the core inflation rate was sustained at 2.5% over the same period. U.S. housing starts contracted by 6.2% month-on-month to a 17-year low of 895,000 units in August after a decline of 12.4% in July.

After easing to a 7-month low of US$91.15/brl on Tuesday, crude oil prices rebounded to register a weekly gain of 3.3% at US$104.55/brl on concerns over supply disruptions in the Gulf of Mexico.

On the local front, the Ringgit strengthened marginally by 0.2% against the U.S. dollar to close at RM3.342 for the week. On a year-to-date basis, the Ringgit depreciated by 3.6% against the greenback.

Looking ahead, the local market is anticipated to continue moving in tandem with overseas markets over the near term. Investors will continue to monitor the outlook for commodity prices, economic growth and interest rates.

At the KLCI’s closing level of 1,025.70 points on 19th September 2008, the local stock market is valued at a P/E of 12.3x on 2008 earnings which is at a discount of 27% to its 8-year average of 16.9x. The market is also supported by a gross dividend yield of 5.8% which compares favourably to Ringgit fixed deposit rates for tenures of less than one year.

REGIONAL STOCKMARKET COMMENTARY

For the week ended 19th September, the Hang Seng China Enterprise Index (HSCEI) fell below 9,000 points on Thursday in tandem with global equity markets. However, the Chinese government’s plans to remove the stamp duty on stock purchases coupled with the purchase of stakes in China’s three largest banks helped the HSCEI to rebound and recoup its earlier losses.

South-East Asian markets closed on a cautious note despite the rebound in share prices later in the week. The Thai market fell by 4.5% while the Philippines market closed 6.9% lower for the week.

The People’s Bank of China reduced the one-year base lending rate for the first time in 6 years by 27 basis points to 7.2% and lowered the reserve requirement ratio by 100 basis points to 16.5% for small and medium-sized banks on 15th September to encourage credit growth and reduce tight monetary conditions.

Singapore’s retail sales growth rebounded strongly to a 13-month high of 11.8% in July after declining by 3.4% in June on higher consumer spending on vehicles and gasoline. Singapore’s non-oil domestic exports declined further by 13.8% in August after contracting by 5.8% in July due to lower electronics and pharmaceutical exports.

The near term outlook for regional equity markets will continue to depend on the trend in oil prices, the interest rate cycle in each respective market and the outlook for U.S. economic growth, interest rates and developments in the U.S. sub-prime mortgage market. However, following the retracement in regional share prices in recent weeks, the valuations of several regional markets are now below their historical averages.

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