Market Commentary for the week ended 30 May 2008

STOCKMARKET COMMENTARY


The decline in regional markets caused the KLCI to touch a 6-week intraday low of 1,260 points on Wednesday. However, better-than-expected 1Q2008 GDP growth for Malaysia and the U.S. helped the local market to close at 1,276.1 points to register a marginal gain of 0.1% for the week.



Average daily trading volume during the week was sustained at 0.5 billion units while average trading value increased to RM1.4 billion from RM1.3 billion in the preceding week.



On Wall Street, share prices rebounded due to better-than-expected U.S. GDP growth of 2.5% year-on-year for 1Q2008. On an annualised quarterly basis, GDP growth rose to 0.9% in 1Q2008 from 0.6% in 4Q2007. Sentiment was also lifted by the pull-back in oil prices from recent record highs of above US$130/brl. The Dow closed 1.3% higher at 12,638 points while the Nasdaq was up 3.2% at 2,523 points for the week due to gains in selected technology stocks.



U.S. GDP growth for 1Q2008 was sustained at 2.5% on a year-on-year basis. Investment spending remained weak and contracted by 3.2% in 1Q2008 compared to a decline of 3.7% in 4Q2007. Consumer spending growth eased to 1.9% in 1Q2008 from 2.6% in 4Q2007. On an annualised quarterly basis, GDP growth rose to 0.9% in 1Q2008 from 0.6% in 4Q2007 as investment spending declined at a slower pace than the previous quarter.



Crude oil prices eased to US$127.35/brl to register a weekly loss of 3.2% following news of an increase in U.S. oil inventories.



On the local front, Malaysia’s GDP growth moderated slightly to 7.1% in 1Q08 from 7.3% in 4Q2007 due to slower growth in investment spending. However, consumer spending rose to 11.8% in 1Q2008 from 10.2% in 4Q2007.



On the supply side, growth of the services sector eased to 8% in 1Q2008 compared to 9.3% in 4Q2007 while the manufacturing sector’s growth strengthened to 6.9% in 1Q2008 from 5.6% in 4Q2007. The agriculture sector’s growth increased to 6.3% in 1Q2008 from 4.7% in 4Q2007 on higher palm oil output. The mining sector’s growth rose to 3.7% in 1Q2008 from 3.5% in 4Q2007 amidst increased production of crude oil while the construction sector's growth picked up pace to 5.3% from 4.7% over the same period, supported mainly by infrastructure projects related to the oil & gas industry and the 9th Malaysian Plan.



The Ringgit depreciated by 0.6% over the week against the U.S. dollar to close at RM3.234 on 30th May 2008 on concerns over rising inflationary pressures. On a year-to-date basis, the Ringgit appreciated by 2.2% 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 economic growth and interest rates in the U.S.



At the KLCI’s closing level of 1,276.1 points on 30th May 2008, the local stock market is valued at a P/E of 15.6x on 2008 earnings which is at a discount of 7.5% to its 8-year average of 16.9x. The market is also supported by a gross dividend yield of 4.4% which compares favourably to Ringgit fixed deposit rates for tenures of less than one year.



REGIONAL STOCKMARKET COMMENTARY


For the week ended 30th May, Japan and South Korea markets registered gains of 2.3% and 1.3% respectively following news of sustained U.S. GDP growth for 1Q2008. However, the Taiwan market eased by 2.4% on profit taking.



With the exception of Singapore, markets in South-East Asia registered losses due to concerns over rising inflation. The Thai market sustained a decline of 4.8% due to uncertainties on the political front.



South Korea’s GDP growth for 1Q2008 was revised up to 5.8% compared to previous estimates of 5.7% (4Q2007: 5.7%) on the back of higher investment spending. Taiwan’s GDP growth eased to 6.1% in 1Q2008 from 6.5% in 4Q2007 due to slower growth in exports demand.



Thailand’s GDP growth rose to a 2-year high of 6.0% in 1Q2008 from 5.7% in 4Q2007 due to higher consumer and investment spending.



The 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.