INVESTOR sentiment for global equities improved considerably last week amid hopes the economic recovery was gathering momentum and debt problems in Greece would be resolved.
Investor interest in Bursa Malaysia also increased as the FBM KLCI climbed closer to the psychologically important 1,300-point level, closing just a shade below it.
Most of last week's rise for the FBM KLCI came on Monday and Friday, where the index gained 12.6 points and 15.7 points, respectively. For the week, the index gained a total of 29 points, or 2.3% to end at 1,299.8.
Over the past month, investor confidence has been flip-flopping, as investors switched between optimism and pessimism over the health of the global economy. Investor sentiment had in recent weeks been affected by a range of issues, ranging from mixed economic data, debt problems in Greece and Wall Street's increasing volatility.
Last week though, sentiment improved as US economic data suggested the recovery was on track, especially on the manufacturing front. The debt problems in Greece also appear under control with the government proposing an austerity drive programme to cut its large fiscal deficit.
The US manufacturing sector expanded for the seventh month in a row in February, although it slowed from January's pace. The Institute for Supply Management's (ISM) purchasing managers' index fell from 58.4% in January to 56.5% in February, but still over a reading of 50%, which indicates growth. The month-on-month (m-o-m) drop indicates that while manufacturing continued to expand, the rate of growth has slowed down.
All eyes will be on the crucial February US jobs report, which will set the tone for trading on Wall Street and regional bourses in the week ahead.
Although the US manufacturing sector is recovering, there are concerns stubbornly high unemployment will continue to crimp consumer spending and stymie the recovery. Consumers are currently still de-leveraging, rebuilding their balance sheet and unwilling to spend due to weak labour market conditions.
Meanwhile, China's slower manufacturing growth in February also tempered concerns — at least earlier in the week — that the government will take further measures to rein in excessive bank lending and investments in industries already facing over capacity.
However, credit-tightening concerns were re-ignited last Thursday, sending Chinese bourses sharply lower. The People's Bank of China had already raised reserve requirements for banks twice this year to prevent asset bubbles and rein in on inflation.
On the local front, Bank Negara raised the Overnight Policy Rate by 25bp to 2.25%. This was expected as the central bank slowly raises rates to more "normalised levels" after cutting them during the crisis. More importantly, it shows that the domestic economy is well on the path to recovery, as was also highlighted by the recent stronger than expected 4Q09 GDP growth of 4.5%.
The recent fourth-quarter earnings season has also largely been positive and generally better than expected. This underlies the resilience of Malaysia's corporate sector in the recent recession.
Looking further ahead, investors will also keenly await the New Economic Model to be unveiled by the prime minister by the end of March. This follows the economic liberalisation moves announced last July, both of which are expected to help reshape the country's economic policy going forward and attract more foreign investments.
