THE FTSE Kuala Lumpur Composite Index (KLCI) Futures contract represents the 30 largest companies by market cap on Bursa Malaysia’s Main Board. Malaysia’s stock market has struggled for most of the year due to a challenging external trade environment, a weak ringgit, and political uncertainty surrounding the recent state elections in August. The contract is down by 1.35 per cent year to date as at market close on Nov 21.

The contract reversed two consecutive monthly declines to post a 1.19 per cent month-on-month gain in October, buoyed by improved sentiment as investors took cues from Wall Street. Sentiment was also lifted by the removal of political overhang following the conclusion of the recent state elections. With just a month left to go in 2023, we remain constructive on Malaysian equities. We expect the FTSE KLCI Futures contract to conclude 2023 within the range of 1,480 to 1,482 due to a favourable combination of fundamental and technical factors. In the medium term, and in the absence of a global recession, we believe the contract may reach 1,517 to 1,520 by the end of H1 2024.

Fundamentally, we are encouraged by the solid Q3 2023 GDP growth of 3.3 per cent year on year, up from 2.9 per cent in Q2 2023. We also expect monetary policy to remain supportive of growth, with Bank Negara Malaysia extending its interest rate pause at its last meeting of the year on Nov 2, 2023. This suggests to us that the policy focus is tilted towards growth rather than inflation.

On a global scale, we expect Malaysia to benefit from a possible end of the rate hike cycle in the US, although China’s uneven economic recovery still poses some downside risk. Nevertheless, we forecast a recovery in external trade, supported by Malaysia’s position as an alternative manufacturing hub. More countries are seeking to “de-risk” and reconfigure their supply chains away from China. The country has reportedly secured around RM63.02 billion (S$18.03 billion) worth of US investments, which include companies like Abbott Laboratories, Amazon and Ford.

On the local front, we expect economic conditions to improve heading into 2024 on the back of the largest-ever budget tabled on Oct 13, as well as policy measures and economic reforms under the Madani Economic Framework. We are also optimistic about the potential economic benefits of the jointly developed Johor-Singapore Special Economic Zone.

From a technical perspective, the FTSE KLCI Futures contract looks to have recently retraced from its prior breakdown of support at the 61.8 per cent Fibonacci retracement level at around 1,460. Some key technical observations supporting our bullish thesis are:

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- The Relative Strength Index indicator is above 50, signalling bullish momentum.

- The contract is trading above its 50, 100, and 200-day moving averages.

- The Moving Average Convergence Divergence indicator (MACD) shows a bullish crossover signal, represented by the MACD line trending above the signal line. The MACD histogram is also in positive territory, indicating bullish momentum.

In summary, we hold a constructive view on the FTSE KLCI Futures contract and expect it to trend higher and challenge resistance at the 76.4 per cent Fibonacci retracement level around 1,480 to 1,482 points by the end of 2023. Immediate support is at the 61.8 per cent Fibonacci retracement level around 1,460 points. If bullish momentum is sustained, the contract could reach 1,517 to 1,520 by the end of H1 2024.

The writer is investment analyst at Phillip Nova