• Foreign institutional investors net trading value surged over 500% w-o-w

• FBMKLCI added a cool 34.42 points, 2.5% higher w-o-w

FBMKLCI produced one of its best rebounds in quite sometime last week thanks to the positive development in US amid its June CPI that reduced sharply to 3.0%. This is slightly better than consensus of 3.1% but markedly better than May’s of 4.0% and the last one-year peak of 9.1% (June 2022). More importantly, it is just a few tads above US FOMC inflation target of circa 2.0%, suggesting that the US central bank could be near the peak of interest rate upcycle. The turnaround by FBMKLCI was expected amid its form that was trampled by multitude of forces, US aggressive interest rate increases and US prevailing inflationary risks notwithstanding. It was a quality rise across all bellwether indexes including FBM70 (+2.8%; w-o-w), FBM EMAS (+2.6%), FBM EMAS Shariah (+2.5%) and FBMKLCI (+2.5%). Investors were also encouraged by the turnaround in oil prices amid Brent crude that ended above USD80 per barrel on Wednesday and Thursday, its first above the psychological level of USD80 per barrel since April this year. This sparked foreign investors return to Bursa Malaysia with its net trading value surged to a net buy of RM570.9mn, a sharp 570.9% increase on w-ow basis. FBMKLCI that added a cool 2.5%, equivalent to 34.42 points for the week, emerged as the third best in the region after PSei (+3.9%) and STI (+3.5%) but ahead JCI (+2.3%) and SET (+1.8%) respectively. Ringgit also rallied, as projected, after ending the week sharply higher, closing the week at RM4.5267 per Dollar, a 3.0% jump on w-o-w basis, its best weekly form since quite some time.

Will this momentum sustain? We think so amid investors that could have already priced-in the prospect of another round of FFR tightening. Note that US FOMC will be holding its next policy meeting on July 27th and market consensus is projecting a 25 bps increase in FFR. The feel-good-factor will also be driven by US CPI that could moderate further in 2H thanks to a lagged impact of aggressive US interest rate increases since last year including in July (+75 bps), September (+75 bps), November (+75 bps), December (+50 bps) before slowing down in February 2023 (+25 bps) and March (+25 bps) after keeping it steady in May and June (FFR: @5.25%). All in all, the FFR has been tightened by 500 bps since last year, unprecedented and a record so to speak. We foresee a positive prospect for equity asset class to be powered by further moderation in US CPI. In addition to a lagged impact of US aggressive interest rate adjustments since last year, US CPI will also moderate driven by base effect advantage (US CPI average July-December 2022: 7.7%). This could be a cue for US FOMC to reach the end of its interest rate upcycle, whilst also trigger a rate cut. On that score, US FFR could be heading for a cut as early as in 4Q23 or 1Q24. All in all, US FFR is set to lowered by at least 100 bps if the US wants avert a recession. This could also cause the USD to pullback and hence, an upside risk for Ringgit.

Source: BIMB Securities Research - 16 Jul 2023