The local market started the week on a firm note with the FBM KLCI crossing above 1,500 points and touching a one-week intraday high of 1,521.2 points on Friday following the rebound in global and regional markets. The index closed at 1,517.6 points to register a gain of 1.5% for the week.

Average daily trading volume decreased to 1.8 bil from 2.6 bil units in the preceding week while daily turnover in value terms fell to RM2.0 bil from RM2.8 bil over the same period.

On Wall Street, shares prices were firm on the back of better-than-expected U.S. corporate earnings and housing starts for January 2011. The Dow rose by 1% to close at a 33-month high of 12,391 points for the week. The broader-based S&P 500 Index was also up 1% to close at a 33-month high of 1,343 points while the Nasdaq was up by 0.9% to 2,834 points over the same period.

In the U.S., consumer spending remained resilient with retail sales growth rising to 7.8% in January 2011 from 7.6% in December 2010 amidst higher automotive and gasoline sales. The U.S. housing market improved with housing starts rising to a seasonally-adjusted annual rate of 596,000 units in January 2011 compared to 520,000 units in December 2010. The U.S. inflation rate rose to an 8-month high of 1.6% in January 2011 from 1.5% in December 2010 on higher food and housing costs while the core inflation rate increased to 0.9% from 0.6% over the same period.

Oil prices rose by 0.7% to close at US$86.20/brl due to supply concerns amidst political uncertainties in the Middle East.

On the domestic front, Malaysia’s GDP growth moderated to 4.8% in 4Q2010 from 5.3% in 3Q2010 on slower growth of exports and consumer spending. For the whole of 2010, Malaysia registered an annual GDP growth of 7.2% compared to a decline of 1.7% in 2009 amidst a rebound in exports and private investment.

On the demand side, consumer spending growth slowed to 6.5% in 4Q2010 from 7.1% in 3Q2010 while investment spending moderated to 9.2% from 9.8% over the same period. Meanwhile, export growth decelerated to 1.5% in 4Q2010 from 6.6% in 3Q2010 on lower electronics exports. On the supply side, the manufacturing sector growth eased to 6.2% in 4Q2010 from 7.5% in 3Q2010 while the services sector growth gained pace to 6.2% from 5.4% over the same period.

On a weekly basis, the Ringgit strengthened by 1.0% against the US$ to close at a 13-year high of RM3.024 while on a year-to-date basis, the Ringgit appreciated by 1.2% 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.

As at 18th February 2011, the local stock market is valued at a P/E of about 16.0x 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 3.6%, which is in line with the 10-year average of 3.6% but exceeds the 12-month fixed deposit rate of 2.85%.