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Week ended 25 April 2008

The KLCI touched a 7-week intraday high of 1,300.1 points on Thursday following the rise in regional markets over the week. However, profit-taking caused the KLCI to close 1,288 points to register a gain of 1.6% for the week.

· Most regional markets closed on a higher note with the Shanghai Composite Index and Hang Seng China Enterprise Index registering gains of 15% and 12.2% respectively for the week.

· The local market is expected to continue to take its cue from regional markets as investors monitor the outlook for economic growth and interest rates in the U.S.

STOCKMARKET COMMENTARY

The KLCI touched a 7-week intraday high of 1,300.1 points on Thursday as sentiment was lifted by higher regional markets. However, profit-taking caused the KLCI to close at 1,288 points to register a gain of 1.6% for the week.

Average daily trading volume increased to 0.7bil units from 0.5bil units while daily turnover in value terms rose to RM1.3bil from RM1.2bil in the previous week.

Most regional markets closed on a higher note. The Shanghai Composite Index and Hang Seng China Enterprise Index registered weekly gains of 15% and 12.2% respectively following the Chinese government’s reduction of stamp duty on share transactions from 0.3% to 0.1%.

On Wall Street, share prices rose as investors’ concerns over the credit market crisis continued to ease. The Dow rose by 0.3% to close at a 4-month high of 12,892 points while the Nasdaq rose higher by 0.8% to 2,423 points over the week.

In the U.S., existing home sales fell by a smaller margin of 0.8% in 1Q2008 quarter-on-quarter compared to a decline of 8.4% in 4Q2007. Existing home prices continued to decline by 4.3% to US$198,700 in 1Q2008 after falling by 6.2% in 4Q2007. U.S. durable goods new orders contracted by 1.8% in 1Q2008 versus a contraction of 2.2% in 4Q2007 due to lower demand for metals, machinery, automobile & parts and electrical equipment. At the Federal Open Market Committee (FOMC) meeting to be held on 30^th April, the Federal Reserve is expected to reduce the Federal funds rate by 25 basis points to 2% as the easing cycle is anticipated to end sometime in 2H2008.

Crude oil prices rose to a record high of US$119.7/brl to register a weekly gain of 2.6% on concerns over tight oil supplies due to geopolitical tensions in the Middle East and Nigeria.

On the local front, Malaysia’s inflation rate rose to a 13-month high of 2.8% in March from 2.7% in February as food & non-alcoholic beverages prices increased by 4.9% in March from a 4.4% increase in February.

The Ringgit weakened by 0.4% against the U.S. dollar to close at RM3.1543 for the week on speculation that the central bank sold the local currency to stem its recent uptrend. On a year-to-date basis, the Ringgit appreciated by 4.8% against the greenback.

Looking ahead, the local market will continue to take its cue from regional markets as investors monitor the outlook for economic growth and inflation.

At the KLCI’s closing level of 1,288.08 points on 25^th April 2008, the local stock market is valued at a P/E of 15.7x on 2008 earnings, which is at 7.2% discount to its 8-year average of 16.9x. The market is also supported by an attractive gross dividend yield of 4.3% which is comparable to the Ringgit fixed deposit rates for tenures of less than one year.

BOND MARKET COMMENTARY

For the fortnight ended 25^th April 2008, the U.S. Treasury bond market fell due to concerns over higher inflationary pressures. The 10-year U.S. Treasury yield closed at a 2-month high of 3.87%, up 40 basis points (bps) over the fortnight. The 3 and 5-year U.S. Treasury yields rose by 68 bps and 61 bps to 2.42% and 3.18% respectively over the same period.

Malaysian Government Securities (MGS) market eased on the back of heightened inflationary concerns and weak demand for the reopening of the new 3-year MGS. Yields on the 3, 5 and 10-year MGS rose by between 4 bps and 7 bps to 3.49%, 3.52% and 3.79% respectively over the fortnight.

Local corporate bonds also eased on higher trading activities with the yields on the 5 and 10-year AAA corporate bonds rising by 10 bps and 2 bps to 4.60% and 4.97% respectively over the fortnight. The 3-year AAA corporate bond yield remained unchanged at 4%.

In the money market, the spread of the 3-month KLIBOR over the 3-month U.S. Treasury bill rate narrowed to 225 bps from 243 bps over the fortnight as the yield on the 3-month U.S. Treasury bill rose by 18 bps to 1.36%.

Sentiment on the U.S. Treasury bond market is expected to remain cautious as the Federal Reserve may pause its easing monetary policy in view of potential inflationary pressures. The Federal Reserve is expected to make a less aggressive reduction of 25 basis points in the Federal funds rate to 2% at the FOMC meeting on 30^th April.

On the domestic fixed income front, the market is expected to remain underpinned by resilient demand for quality bonds and expectations of a strengthening Ringgit exchange rate against the U.S. dollar. However, bond investors are expected to maintain a cautious stance as they continue to monitor potential inflationary pressures amidst elevated food prices.