• The KLCI strengthened to close at 1,692.22, up 9 points versus the previous week.

• The positive sentiment continued amidst gains made by China stocks and Asia ex-Japan.

• Week 3 continued to be dictated by foreign funds, with a healthy inflow of RM417.3m compared to just RM25.6m the previous week. Local institutions continued to be net sellers this year.

• We expect inflows to continue in January as seen during the past 2 years. Meanwhile, smaller capitalisation stocks could still attract retail investors who have been monthly net buyers since Oct 2018.

Sentiment turned positive

Again, foreign funds and retail investors helped propel the market higher for the second straight week. The KLCI remained resilient last week with another 0.5% gain, as regional stock markets rose. The market saw 4 straight days of net foreign inflow, culminating in a peak of RM186m inflow on Friday. In addition, retail investors continued to be active net buyers in the market.

The ringgit stayed relatively stable last week settling at RM4.11 to the USD. Meanwhile, Brent crude oil rose above USD62 per barrel, the highest level since early Nov 2018. Brent price has shown a healthy recovery since it dipped to approx. USD50 in late December.

Net inflows gathering momentum

Net inflows of funds are again showing positive momentum as January-to-date amount is now RM425m. This is consistent with the trend in Jan 2017 as well as Jan 2016. As highlighted last week, the short-term themes for financial markets are weakening USD that have helped EM currencies to recover this year. Meanwhile, China stocks saw a sharp recovery as the government stayed proactive in introducing measures to ensure that GDP growth is at 6% in 2019.

We believe that the anticipation of stronger EM currencies and expectation of more gains in the short term are seeing funds returning to regional markets. Additionally, domestic retail investors have remained positive on the market, with a net buy month-to-date of RM210m – eclipsing the entire Dec 2018 amount of RM185m – boosting mid to small cap stocks this year.

Source: BIMB Securities Research - 22 Jan 2019