After commencing the week on a firm note, the FBM KLCI fell to a 2½ month low intraday low of 1,490.4 points on Thursday amidst the retracement in regional markets. The FBM KLCI subsequently closed at 1,494.5 points to register a loss of 2.4% for the week.

Average daily trading volume increased to 2.5 bil from 1.5 bil units in the preceding week while daily turnover in value terms rose to RM2.7 bil from RM1.9 bil over the same period.

Regional markets eased on continued concerns over food-related inflationary pressures and higher interest rates across developing economies. The Hang Seng China Enterprises Index fell by 4.9% while most regional markets registered weekly losses ranging between 3% and 5%.

On Wall Street, share prices continued to remain firm on the back of better-than-expected sales for most U.S. companies in the last quarter and positive merger & acquisitions news. The Dow rose by 1.5% to close at 12,273 points for the week. The Nasdaq was up 1.4% to close at 2,809 points over the same period.

In the U.S., consumer spending improved as the University of Michigan’s Consumer Sentiment Index rose to an 8-month high of 75.1 in February from 74.2 in January amidst improving economic conditions. On the external front, export growth slowed to 13.7% in December from 15.2% in November on lower exports of civilian aircraft and consumer goods while import growth moderated to 12.8% from 13.9% over the same period. As imports grew by a larger margin than exports, U.S. trade deficit for 2010 widened by 32.8% to US$497.8 billion compared to the same period last year.

Crude oil prices registered a loss of 3.9% over the week to close at US$85.58/brl following an increase in U.S. oil inventories.

On the local front, Malaysia’s industrial production growth moderated to 4.2% in December from 5.4% in November on lower production in the mining and electricity sectors. However, manufacturing sales growth rose to a 6-month high of 11.4% in December from 8.5% in November.

On a weekly basis, the Ringgit weakened by 0.3% against the US$ to close at RM3.054 while on a year-to-date basis, the Ringgit appreciated by 0.2% against the greenback.

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.

At the KLCI’s closing level of 1,494.5 points on 11th February 2011, the local stock market is trading at a prospective P/E of 15.7x on 2011 earnings, which is lower than the market’s 10-year average P/E ratio of 16.7x. The local market is supported by a gross dividend yield of about 3.5%, which is below the 10-year average of 3.6% but exceeds the 12-month fixed deposit rate of 2.85%.