• Foreign Net Buy Hit One of Its Best Last Tuesday After China Cut Its 5-year Loan Prime Rate
   
• China struggling growth momentum could be a precursor of economic stimulus

• The lower the Ringgit value the more attractive it is for foreign investors

FBMKLCI recorded its single best day increase last Tuesday after the index added close to 17 points to end at 1,555.59-points thanks to China larger-than-expected cut in their policy rate. Of note, China cut the 5-year loan prime rate (LPR) which commercial banks use as a benchmark to adjust their mortgage rates, from 4.2% to 3.95%, marking the largest rollback since the system was introduced in 2019. The surged in buying interest towards FBMKLCI was palpable after volume surged a whopping 67% (269mn shares) against the day before reaching the year’s high last Friday (340mn shares). On the same beat, foreign net buy remained very encouraging which reached a steady RM2.30bn YTD. If the momentum continues, foreign net buy could reach between RM7-8bn, if not more. On that score, FBMKLCI is on the right track to reach our year end target of 1,720-points assuming no significant selling pressure by the local funds. What drawn foreign investors to our local market last week? For one, the cut in China’s policy rate means a downward pressure on Ringgit which is a catalyst for exports momentum (note: Ringgit touched 2024 low of RM4.7987 per Dollar last Tuesday). Secondly, services sector will get a shot-in-the-arm as competitive Ringgit will boost our tourism sector. Thirdly, competitive Ringgit will lift demand for manufacturing goods particularly when the sector has reached its bottom. We project manufacturing sector upcycle this year particularly the E&E goods which contribute a significant share in manufacturing sector. Above all, the cut in China policy rate suggests that the central bank could roll-out a stimulus packages to bolster the economy particularly with dwindling property market on the back of deflation that is currently biting the economy. Of concern, is the downward spiral in China’s housing prices which could push borrowers to lapse in payment, creating a surge in NPL in banking sector and the economy as a whole. The largerthan-expected cut in China’s LPR means the central bank is willing to stem the decline hard and hence, the confidence that PBoC will do whatever it takes to protect the economy. Nonetheless, there is a growth concern over China given its declining growth momentum which is projected to moderate further to 4.6% in 2024 against 5.2% in 2023. Its growth momentum is expected to touch a multi-year low of 4.1% in 2025, assuming no economic stimulus from PBoC. We have our concern over China given our economic and trade coupling with the country. Any negative news flow from China will have a direct impact on the country, a concern we have flagged in our annual strategy. For the coming week, we don’t foresee any significant economic announcement that could push investors to the sideline. Nonetheless, this coming week is the final wave of corporate earnings season. On that score, investors may want to wait for big corporation results announcement. Other than that, economic indicator to watch for is Ringgit particularly when the currency is currently trading close to historical low of RM4.88 per Dollar. Until there is a clarity when the US will cut its interest rate, we foresee downside risk to Ringgit to continue.

Source: BIMB Securities Research - 26 Feb 2024