After recent gains, the FBM KLCI eased on profit-taking to a 2-week intraday low of 1,547.0 points on Friday in tandem with the retracement of regional markets. The index closed at 1,547.4 points to register a loss of 1.4% for the week.

The average daily trading volume decreased to 1.9 bil units from 2.5 bil units in the preceding week while average trading value eased to RM2.5 bil from RM2.8 bil over the same period.

On Wall Street, sentiment was mixed as weaker-than-expected corporate results from selected major financial institutions were mitigated by a pledge among European financial regulators to support the Eurozone region. The Dow rose by 0.7% to close at a 31-month high of 11,872 points for the week. The broader-based S&P 500 Index eased by 0.8% to 1,283 points while the Nasdaq was down by 2.4% to 2,690 points over the same period.

In the U.S., the labour market continued to be firm with the initial jobless claims falling to 404,000 for the week ended 16th January 2011 compared to 441,000 claims in the previous week. The U.S. housing market gained pace with existing home sales rising by 12.3% month-on-month to a seasonally-adjusted annual rate of 5.28 million units in December compared to an increase of 6.1% in November as home-buyers capitalized on low mortgage rates.

Oil prices fell by 3.9% to close at a 5-week low of US$87.96/brl following an increase in U.S. oil inventories.

On the domestic front, Malaysia’s inflation rate rose to a 19-month high of 2.2% in December from 2% in November amidst higher housing and transportation costs. For the whole of 2010, Malaysia registered an inflation rate of 1.7% compared to 0.6% in 2009.

After declining by 0.8% in 2010, Malaysia’s foreign reserves maintained at RM329.9 billion as at 14th January 2011. On a weekly basis, the Ringgit remained firm to close at RM3.06 against the US$.

Looking ahead, the local market is anticipated to remain supported by resilient economic growth, low real interest rates and healthy corporate earnings growth. However, investors will continue to monitor the outlook for the U.S. and global economic activities.

As at 21st January 2011, the local stock market is valued at a P/E of about 16.2x 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 3.4%, which is lower than the 10-year average of 3.6% but exceeds the 12-month fixed deposit rate of 2.85%.