• The FBMKLCI extended its rally, closing at 1,635.74 pts, up 11.8 pts (+0.73%) from the prior week, continuing to benefit from market volatility, which reflects growing support from foreign funds.

• For the week ending August 23, foreign investors were net buyers of RM1,403.56mn, strengthening their position from the previous week’s net buying of RM299.63mn.

• This week sector rotation is anticipated to continue focusing on the Financials sector, with subsequent shifts towards the Construction, Plantation, and Consumer sectors; based on analyses of relative strength and momentum.

• Our FBMKLCI year-end target of 1,720 pts remains on track, given the overall positive trend, though profit-taking activities among recent significant outperformers and sector rotation are likely to persist due to a lack of fresh catalysts.

FBMKLCI Surge +0.73% WoW

The FBMKLCI extended its rally, closing at 1,635.74 points, up 11.8 pts (+0.73%) WoW, continuing to benefit from market volatility and growing support from foreign funds. However, the index ended the week on a down note, decreasing by 5.92 pts or -0.36% on Friday, ahead of Jerome Powell's speech at the Jackson Hole Symposium later that evening. In line with market nervousness, foreign investors turned net sellers on Friday, with a net sell value of RM1.55mn. Local retail investors were the only net buyers of Malaysian equities, with a net buying value of RM78.2mn, in contrast to being net sellers for five consecutive days, totaling RM456.4mn.

While some profit-taking activities are likely, we believe the overall trend remains positive. A clear endorsement of forthcoming policy easing by Jerome Powell is expected to continue supporting the return of foreign investors, given Malaysia's appealing economic outlook, a strengthening ringgit, and supportive economic policies.

Market Movements Remain Healthy

Foreign and local investors continue to play a crucial role in maintaining market stability. Malaysia's stable political environment, supportive economic policies, and strong economic performance, with the economy growing by 5.9% in Q2 2024, up from 4.2% in Q1, expected to sustain investor sentiment moving forward.

We anticipate the equity market to remain robust for the remainder of 2024 and into 2025, continuing to benefit from market volatility, which will support daily traded volume and value. The benchmark KLCI index was notably impacted by profit-taking in the Technology sector, followed by the Utilities and Energy sectors, which were the worst-performing sectors during Week 34 (refer to Table 5).

Conversely, foreign buying remained strong during Week 34 (19-23 August), with foreign investors becoming net buyers of RM1,403.56mn, continuing their net buying position from the previous week's RM299.63mn. However, they turned net sellers on Friday, with a net sell value of RM1.55mn. Notably, fund flows from 19 to 23 August indicated that the largest net buy sectors for foreign investors were Finance (net value of RM1.3bn), Utilities (RM173mn), and Telco & Media (RM78mn). These gains were partially offset by net selling in Technology (-RM140mn), Consumer (-RM58mn), and Property (-RM39mn). The top net buys by foreign investors were Public Bank, Maybank and CIMB, while the top net sells were MYEG, MISC and YTLPower.

Our View

This week, Bursa Malaysia is expected to trade within a relatively stable range, in line with global equity markets. A key area of focus will be the recent tensions in the Middle East involving Israel and Hezbollah. Despite the prevailing caution, we believe the FBMKLCI's valuation remains attractive, suggesting potential buying opportunities and strategic market positioning for next year. It's worth noting that U.S. three major indexes recording weekly gains in Week 34, following U.S. Federal Reserve Chair Jerome Powell's clear indications of a potential reduction in benchmark lending rates at the Jackson Hole Economic Symposium.

According to our Chief Economist, it is important to note that, market pricing remains largely unchanged from the prior week. For the September meeting, a 25 basis points (bps) cut is fully priced in, with a 24% chance of a more aggressive 50 bps reduction. Looking further ahead, by the end of the year, markets are fully pricing in a total of 75bps in rate cuts, with around 65% probability that the total reduction could reach or exceed 100bps. Hence, between now and then the biggest focus will be placed on the jobs data out on September 6th.

This week sector rotation is anticipated to continue focusing on the Financials sector, with subsequent shifts towards the Construction, Plantation, and Consumer sectors; based on analyses of relative strength and momentum.

Source: BIMB Securities Research - 26 Aug 2024