01 - 05 MARCH 2010

Weekly review

The major indices made hefty gains in a low volume week with investors embracing better-than-expected economic data. Much of the week was spent in anticipation of the February employment report, released Friday. Although the U.S. continued to shed jobs, the decline was smaller-than-expected as economic forecasters overestimated the impact of severe winter weather. For the week, Dow Jones was up 2.3%, S&P 500 advanced by 3.1% and Nasdaq was up 3.9%. Importantly, the unemployment rate held steady at 9.7% versus the expected increase to 9.8%, with underlying data suggesting job creation. However, the increase in employment is due to hiring of part-term workers. In other positive economic items, February ISM services rose to 53.0 from 50.5, topping the consensus of 51.0 and posting the highest reading since 2007. There were a few corporate items of note as deal making picks up with CF Industries upping the ante in its renewed bid to acquire Terra Industries (TRA), which previously agreed to be acquired by Yara International. Separately, AIG (AIG) is selling AIA Group, Ltd., to Prudential Plc (PUK) for US$35.5bn.

Asian stocks rose for a second week, almost erasing the MSCI Asia Pacific Index’s losses this year, as reports on global semiconductor sales, Indian manufacturing and U.S. jobless claims boosted optimism for an economic revival. The MSCI Asia Pacific Index gained 1.9% this week, paring its decline this year to 0.1%. Japan’s Nikkei 225 Stock Average increased 2.4%, its largest gain this year. India’s Sensitive Index surged 3.4%, this week’s biggest advance among benchmarks in the Asia-Pacific region, after reports showed the nation’s exports and manufacturing output climbed. China’s Shanghai Composite Index slipped 0.7% on concern bank lending may slow and interest rates will rise as inflation accelerates. Hong Kong’s Hang Seng Index rose 0.9%. Australia’s S&P/ASX 200 Index increased 2.8% even as the nation’s central bank raised its benchmark interest rate to 4% from 3.75% on March 2. Raw-material suppliers advanced the most this week among the MSCI Asia Pacific Index’s 10 industry groups, followed by information-technology companies, on speculation a global recovery will boost demand for commodities.

The local bourse hit a psychologically important mark of 1,300 points at 4pm last Friday before ending the week at 1,299.8 points. It is marginally higher than the previous week’s close of 1,270.78 points. The FBM KLCI extended its gains at the beginning of the week on positive news flows about the domestic economy. Blue chips were the focus of last week’s trading as the satisfactory 4Q2009 earnings buoyed investor confidence. Bank Negara raised the overnight policy rate by 25 basis points to 2.25% last Thursday, the first hike in almost four years. It said the rise was justified given the significant improvement in the domestic economy and moderate rise in inflation. Banks with high variable rate loan and CASA ratio including Malayan Banking Berhad and Alliance Financial Group would benefit the most. On the corporate front, The Employees Provident Fund has made an offer to buy the rest of Malaysian Resources Corp at RM1.50 each after it triggered the general offer rule. Boustead Holdings marked a significant corporate exercise by disposing of its 80% stake in BH Insurance (M) Berhad to AXA Affin General Insurance for RM363m.

Economic news 

US: Services sectors accelerated in February more than anticipated according to the Institute for Supply Management (ISM)’s index of non-manufacturing businesses. The index increased to 53.0 from 50.5 in January. Initial jobless claims fell 29,000 to 469,000 in the week of 27 Feb. This marks the lowest level since 9 Jan. Non-farm unit productivity was revised up to a 6.9% (from 6.2% initially reported annual rate in 4Q09, while unit labor costs were revised down to a 5.9% (from -4.4%) rate of decline. Same store sales, or sales at stores opened for at least a year, jumped 4.0% in February. 

Malaysia: Bank Negara Malaysia (BNM) has raised the Overnight Policy Rate (OPR) by 25bps to 2.25% at its monetary policy committee (MPC) meeting on 4 Mar as the economic recovery is firmly established. Exports grew strongly by a double-digit of 37.0% yoy in January, after a gain of 18.7% in December.