• Malaysia’s stock market performance was relatively muted last week, with KLCI ending at 1,680.54, almost unchanged from previously.

• A net foreign outflow of RM421m continued to cap the KLCI performance. Net buying continued from local institutions, worth RM373.5m versus RM851m previously.

• The market remained cautious on concerns on economic data as well as specific domestic sectors, ie gloves and utilities (Tenaga).

• Global rise in equities is a double-edged sword for Malaysia, as net flows likely to head elsewhere in region.

Malaysia disappoints amid regional rise

The Malaysian market continued to disappoint as global markets rose last week. However, this is not unexpected as we highlighted previously that the KLCI is likely to underperform the region/EM due to weak earnings growth this year and high valuations as PE remains above trend.

The KLCI was relatively unchanged from the previous week at 1,680 – falling to negative 0.7% performance YTD and still down by 8.9% 1 year basis. Mixed economic data from China - and the US – coupled with slow progress on US-China trade resolution capped performance, in our view.

Stronger crude oil prices generated interests in the entire O&G sector, and hugely benefited small capitalisation stocks that have been ignored until this year. Brent oil saw its price rising to USD67.20 per barrel due to global production cuts and supply disruptions in Venuezela.

Accommodative stance could further fuel markets

There was optimism in global markets last week as investors adopted a risk on approach. Chinese Premier Li Keqiang said it was considering cutting some interest rates and banks’ reserve requirements to bolster economic growth, which have been affected by US-China trade issues. In the US, several risks, i.e. mixed economic data from both China and the US economic signals, plus a softer-than-expected inflation reading sent the yield on the benchmark 10-year Treasury note to 2.59%, its lowest level since January.

Again, the markets could be seeing gains fuelled central banks’ accommodative stance, which have helped propel strong equity performance over the past 10 years.

Source: BIMB Securities Research - 18 Mar 2019