• The KLCI continued to weaken, closing the week at 1,605.36, down 5 points, as global markets declined.

• Foreign selling intensified during the week, registering a massive outflow of RM1.2bn compared to -RM450.9m a week before. Foreign funds YTD net selling has risen to RM4.5bn.

• The market remained negative on the escalated trade war which saw tariff of 25% imposed on USD200bn Chinese goods took affect on May 10.

• Malaysia’s 1Q19 GDP expanded 4.5% yoy but this failed to excite a market that is concerned on growing impact of trade war on economic growth.

Largest weekly outflow since June 2018

The KLCI slumped to a near 4-year low last week triggered by an escalating US-China trade war. The index fell below the key 1,600 point but recovered to close at 1,605 on Friday, as the market experienced a net foreign outflow of RM1.2bn. This is the largest weekly outflow since June 2018 (net outflow of RM1.9bn in week 25).

The market steadied on Friday following the release of Malaysia’s 1Q19 GDP of 4.5% – driven mainly by private sector activity and private consumption growth – accompanied by measures aimed at enhancing market efficiency, liquidity and accessibility in both the bond and foreign exchange markets. This was in response to news last month that FTSE Russell was considering downgrading Malaysia’s bond.

The ringgit was stable at around RM4.17 level following the BNM announcement. There was also some short-term support for ringgit as Brent rose by 3% to USD72.6/b due to geopolitical issues in Middle East. However, the ringgit has weakened considerably from 4.04 to the USD since last March.

1Q19 earnings stretch and trade war in focus

Corporate earnings for 1Q19 released so far has done little to lift stocks and validates earlier expectations that KLCI aggregate earnings are indeed slowing. Further, the worsening trade rift between the US and China last week coincided with economic data from China showing that its economy remained on slowing trend. China had reported growth in industrial output, retail sales, and fixed asset investment for April which lagged forecasts. The 25% US tariffs rolled out on Chinese imports the previous week is expected to make growth prospects worse. Additionally, tech stocks could see negative repercussion from the Huawei ban imposed by the US.

Source: BIMB Securities Research - 21 May 2019