Firm offshore markets coupled with buying of selected heavyweight index stocks helped the FBM KLCI to cross 1,500 points and touch a 2-week intraday high of 1,518.8 points on Thursday. The index closed at 1,511.6 points to register an increase of 0.8% for the week.

The average daily trading volume was sustained at 1.2 bil units compared to the preceding week while average trading value eased to RM1.6 bil from RM2 bil over the same period.

On Wall Street, share prices continued to remain firm on news that the U.S. 3Q2010 GDP growth was revised up slightly to 2.6% from earlier estimates of 2.5%. The recent uptrend in the 10-year Treasury bond yields to above 3% since early December also boosted sentiment for equity assets. The Dow rose by 0.7% to close at a 28-month high of 11,573 points while the broader-based S&P 500 Index rose by 1.0% to 1,257 points. The Nasdaq was up 0.9% to 2,666 points over the same period.

In the U.S., GDP growth for 3Q2010 was revised up to 2.6% on an annualised quarter-on-quarter basis from earlier estimates of 2.5% due to stronger consumer and investment spending. The U.S. labour market improved with initial jobless claims falling to a 420,000 for the week ended 17th December compared to 423,000 claims in the previous week. However, U.S. existing home sales rose by 5.6% month-on-month to a seasonally-adjusted annual rate of 4.68 million units in November compared to a decline of 2.2% in October and market expectations of a 7.1% increase.

Oil prices registered a weekly gain of 3.3% at a 26-month high of US$90.91/brl following a decline in U.S. oil inventories.

On the domestic front, Malaysia’s inflation rate was sustained at 2% in November, the same level as in October amidst resilient food and transportation costs. For the first eleven months of 2010, Malaysia registered an inflation rate of 1.7% compared to 0.6% in 2009.

Malaysia’s foreign reserves fell by 1.4% on a year-to-date basis to RM326.7 billion as at 15th December 2010 due to the appreciation of the Ringgit against major currencies.

The Ringgit closed at RM3.096 to register a weekly gain of 1.3%. On a year-to-date basis, the Ringgit appreciated by 11.2% against the greenback.

Looking ahead, the local market is anticipated to move in tandem with overseas markets as investors continue to monitor the recovery of global and regional economic activities amidst the normalisation of interest rates.

As at 24th December 2010, the local stock market is valued at a P/E of about 16.4x on 2011 earnings, which is comparable to its 10-year average P/E ratio of 16.7x. The local market is also supported by a gross dividend yield of 3.5%, which is lower than the 10-year average of 3.6% but exceeds the 12-month fixed deposit rate of 2.85%.