• Stocks were off the blocks. Malaysian market rose in tandem with global stocks, with the US reaching new highs on Thursday. However, US and European stocks fell on Friday following the US airstrike on Iranian military leaders in Iraq the previous evening. The KLCI meanwhile regained the entire 2% loss of 31 December 2019, closing the week at 1,611 points. Malaysian market was helped by another week of net foreign inflow, albeit a small amount of RM29m versus RM61m previously.

• Still optimism on US-China trade deal, but US strike rattled markets. Optimism about a pending interim USChina trade deal also supported market sentiment. President Trump tweeted that he would sign a “Phase 1” trade deal at the White House on 15 January, followed by “Phase 2” signing in China. However, the US airstrike on Iranian military leader Qassim Suleimani rattled inventors sentiment, sending oil and gold prices higher. The 10-yr US treasury yield fell to 1.78% (from 1.87% previous week) as investors fled to safety.

• Malaysia’s PMI rose the strongest in 15 months, China cut RRR. The headline IHS Markit Malaysia Manufacturing PMI – a composite single-figure indicator of manufacturing performance – increased to a 15-month high in December of 50.0, from 49.5 in November. Meanwhile, the People’s Bank of China (PBOC) said on Wednesday that it would cut the reserve requirement ratio (RRR) for financial institutions by a half-point, effective 6 January. The reduction in the RRR would release roughly 800bn yuan (about USD115bn) into the financial system – another measure to support China’s slowing economy.

• Malaysian stocks led by cyclicals, mid-caps; but US-Iran conflict may stifle short-term appetite. The KLCI has shown signs of recovery in recent weeks as foreign funds limit their selling. The last 3 weeks saw net foreign inflow, albeit a combined amount of only RM160m. The KLCI may challenge its upper trading band of 1,615 formed since mid-August, in our view. As written in our 2020 outlook recently, we expect a rebound in global trade should bring about stronger performance for cyclical sectors such as plantation, oil & gas and technology. Short-term risks are on the magnitude of US-Iran conflict and a possible fallout from US-China trade deal.

Source: BIMB Securities Research - 6 Jan 2020