The FBM KLCI eased in tandem with regional markets to close at 1,495.6 points on Friday and register a decline of 1.8% for the week.

Average daily trading volume eased to 1.1 bil from 1.2 bil in the preceding week while daily turnover in value terms was sustained at RM1.8 bil over the same period.

Most regional equity markets retreated on concerns that the impact from Japan’s recent earthquake may dampen regional trade activities. The Japanese market fell by 4.2% while the Taiwan and South Korean markets eased by 2.5% respectively over the week.

On Wall Street, the Dow fell to a 5-week intra-day low of 11,936 points on Friday as sentiment turned cautious amid the political uncertainties in the Middle East and concerns over the earthquake in Japan. The Dow fell by 1.0% to close at 12,044 points for the week. The Nasdaq was down by 2.5% to close at 2,716 points over the same period.

In the U.S., consumer spending improved with retail sales growth rising to a 10-month high of 8.9% in February from 8.1% in January amid improving labour market conditions. However, the University of Michigan’s Consumer Sentiment Index eased to a 5-month low of 68.2 in March from 77.5 in February on concerns over the impact of higher oil prices on household income.

Meanwhile, U.S. export growth rose to 15.9% in January 2011 from 13.9% in December 2010 on higher exports of industrial supplies and auto products. Meanwhile, import growth increased to 19.3% from 12.8% over the same period. As imports grew by a larger margin than exports, U.S. trade deficit for January 2011 widened by 33.8% to US$46.3 billion compared to the same period last year.

Crude oil prices rose to a 2½-year high US$105.44/brl on 7th March 2011 on concerns over the political uncertainties in the Middle East. Crude oil prices subsequently eased to close at US$101.16/brl to a register a loss of 3.1% for the week.

On the local front, Malaysia’s industrial production growth moderated to a 14-month low of 1% in January 2011 from 4.2% in December 2010 on lower production in the mining and manufacturing sectors.

Malaysia’s foreign reserves rose by 3.0% to RM338.6 billion on a year-to-date basis to 28 February 2011. Bank Negara Malaysia kept the Overnight Policy Rate (OPR) unchanged at 2.75% at its meeting on 11th March 2011. However, the central bank raised the Statutory Requirement Ratio (SRR) to 2.0% from 1.0% as a pre-emptive measure to manage ‘the risk of a build-up’ of liquidity in the domestic financial system.

On a weekly basis, the Ringgit weakened marginally by 0.1% against the US$ to close at RM3.033 while on a year-to-date basis, the Ringgit appreciated by 0.9% against the greenback.

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

At the KLCI’s closing level of 1,495.6 points on 11th March 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%.