The FBM KLCI eased in tandem with regional markets amidst concerns over the surge in global oil prices to above US$100/brl. Sentiment was also cautious in the absence of fresh leads for the local market. The index closed at a 2½ month low of 1,489.3 points on Friday to register a loss of 1.9% for the week.

Average daily trading volume remained sustained at 1.8 bil over week while daily turnover in value terms rose to RM2.1 bil from RM2.0 bil over the same period.

Concerns over rising inflationary pressures in the region due to elevated oil prices caused most regional markets to register losses ranging between 1% and 4%. The Hang Seng China Enterprises Index and the Japanese market eased by 3.7% and 3.3% respectively over the week.

On Wall Street, the Dow fell to a 3-week intra-day low of 11,983.2 points on Thursday as sentiment turned cautious on concerns that rising oil prices may dampen economic activities. The Dow fell by 2.1% to close at 12,131 points for the week. The Nasdaq was down by 1.9% to close at 2,781 points over the same period.

In the U.S., the initial jobless claims fell to 391,000 claims for the week ended 18th February 2011 compared to 413,000 jobless claims in the preceding week. Meanwhile, existing home sales rose to a seasonally-adjusted annual rate of 5.4 million units from 5.2 million units over the same period supported by low mortgage rates. Consumer confidence, as measured by the Conference Board Index rose to a 3-year high of 70.4 in February from 64.8 in January on growing optimism over the outlook for the U.S. economy.

Crude oil prices rose by 12.5% to close at a 28-month high of US$96.98/brl due to supply concerns amidst political uncertainties in the Middle East.

On the local front, Malaysia’s inflation rate rose to a 20-month high of 2.4% in January 2011 from 2.2% in December 2010 mainly on account of higher food prices which rose by 3.6% from 2.8% over the same period.

Meanwhile, on a year-to-date basis, Malaysia’s foreign reserves rose by 2.9% to RM338 billion as at 14th February 2011.

On a weekly basis, the Ringgit weakened by 0.8% against the US$ to close at RM3.048 while on a-year-to-date basis the Ringgit strengthened by 0.4% 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 1,489.3 points on 25th February 2011, the local stock market is trading at a prospective P/E of 15.6x 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%.