• Malaysian market closed off their highs in relatively quiet holiday-shortened week – the KLCI ending the week at 1,649.33, almost unchanged from previously.

• A net foreign inflow of RM350.0m continued to support the KLCI’s performance. Meanwhile, local institutional and retail were net sellers at -RM323.3m and -RM26.7m respectively.

• Cumulative net foreign outflow stood at RM4.4bn at end of week 23 versus -RM2.9bn during the same period in 2018.

• A US rate cut is seeing supporting global stocks – and ringgit – as trade war risk to the economy rises.

Foreign funds continue to be net buyers

Malaysia’s KLCI remained at its 3-month high level after another week of inflow. Net foreign inflow was seen during the last 5 trading days – a trend last seen in early February – totaling a substantial RM785m. The inflow has helped the KLCI recovered swiftly from a near-4 year low of 1,572 (recorded on 14 May).

There is optimism creeping in on stocks domestically as large cap stocks continue to rebound. A weak US jobs report of only 75K payrolls expansion in May could see the US cutting interest rates as early as July. Recall that BNM has reduced its OPR to 3% in May. A similar cut in US rates is seen as supporting the ringgit which has been under pressure over the last 2 months. In recent days the ringgit has gained slightly, recovering to RM4.16 against the USD versus RM4.20 a week ago. Economic news were mixed for Malaysia as the latest figures showed Malaysia’s export expanding by 1.1% yoy in April, after falling for 2 consecutive months. Meanwhile, Malaysia’s Nikkei PMI was registered at 48.8 in May down slightly from April’s 49.4.

Expectation for interest rate cuts

The market is now expecting the KLCI to finish 2019 lower than what was expected at the beginning of the year. Following the recent 1Q19 earnings release, the KLCI’s aggregate earnings for FY2019 is now expected at approx 2% versus 5% estimated during Januari 2019. The weaker earnings notwithstanding, there is slight optimism on Malaysia’s equities following a run of outflow since February. The ringgit could receive a slight boost from the US jobs data which provided further evidence of a slowdown in the US economy. The yield on the 10-year Treasury has declined to a 20-month low on Friday and there is a likelihood that we could see a US interest rates cut sooner rather than later.

Source: BIMB Securities Research - 10 Jun 2019