• The KLCI strengthened for the 2nd straight week, up by 0.4% to 1,810.64, versus the previous week.

• The positive sentiment continued amidst weakness in USD as the US-China trade war appeared to have been priced in. Week 38 was dictated by foreign funds, with a healthy inflow of RM514m compared to RM2.6m the previous week.

• We believe that buying of emerging markets, and particularly Malaysia last week, is evidence of investors gravitating towards fundamentals and convergence of valuation gap with record-setting US equities.

Buying momentum carried from week 37

Key highlight for the week is the continuation of net buying of RM514.8m by foreign investors in week 38. The local market’s sentiment picked up along with regional markets, as well as Japan (+0.8% on Friday) and China (+2.5%) stockmarkets. Foreign funds’ buying – and confidence – has stretched to a second week as investors reassessed the impact of trade war on regional economies, in our view. Meanwhile, the ringgit rose slightly to RM4.13 against USD, as the USD continued its weakness, falling against almost major currencies last week. The USD was down by 1% against EUR, and 2% against AUD, whilst giving up between 1- 2% to the rupiah and Turkey lira.

The US equity market continued to add to its record highs amid a rise in US 10-year (UST10) treasury yield to above 3% last week. The UST10 yield is now back at May 2018’s level – rising yield indicates selling in bond.

Week 39 ahead – USD weakness, rotation likely continue

Last week’s surge in emerging and regional equities was accompanied by a recovery in respective domestic currencies, despite impending rise in US rates. The highlight this week will be the US Federal Open Markets Committee meeting which looks set to see another 25 bps interest rates, and possibly followed by the same quantum in December 2018.

We expect the USD weakness to persist this week, thus aiding regional currencies and equities to continue seeing rotational inflow of funds.

Source: BIMB Securities Research - 24 Sept 2018