• The KLCI fell below 1,600 level, falling another 7 points at 1,598.32, as we move into the final week of results season.
• Despite a shortened week, net foreign outflow remained sizeable at RM382.6m versus RM1.2bn outflow the previous week, with YTD amount fast approaching the RM5bn mark.
• Confluence of negatives in US-China trade were compounded by weakness in ringgit and fall in crude oil price, which will likely again dominate headlines along with corporate earnings.

KLCI closes at year’s low

The KLCI closed the week at its lowest for the year as persistent selling in key component stocks saw the index falling below 1,600 level. The KLCI is now at its lowest close for the year at 1,598. There was no respite for the battered KLCI as main variables, i.e. Brent crude oil, ringgit, US-China, continued to influence investors’ decisions for several weeks now, in our view.

Net foreign outflow rose to RM4.8bn YTD as another RM382m exited the Malaysian market last week. The Huawei suspension news by the US saw chip-related fell sharply, i.e. Unisem -7.8%, Inari -7.9%, Globetronics -9.5%, MPI -7.4%.

Brent crude oil fell by 5.8% to USD67.8/b as US inventories reportedly rose to 4.74m bbl – above its 5-yr average for the first time this year. The ringgit continued to experience gradual easing, closing the week at RM4.193, down by 0.4%.

Earnings season final week, US yield curve watch

Corporate earnings for 1Q19 enters the final week. To-date 13 of the 30 KLCI stocks have reported their earnings, which have mostly been in-line with market’s expectations. The main theme for Malaysia’s corporate earnings over the last 2 years have been consistent, i.e. disappointments in earnings leading to downgrades in forward estimates. Currently, KLCI’s 2019 aggregate earnings remains sluggish at approximately 4% yoy. The key to the KLCI’s earnings will be the outlook on financial sector with most banks reporting their results this week (only Public Bank has released earnings so far).

The disappointing IHS Markit and US durable goods order plus the continued search for perceived safe-haven assets, pushed the 10-year US Treasury note yield down to around 2.32%, its lowest level since late 2017.

Source: BIMB Securities Research - 27 May 2019