• The FBMKLCI extended its rally, closing at 1,678.8 pts, up 43.1 pts (+2.63%) from the prior week, continuing to benefit from market volatility, which reflects growing support from foreign investors on blue-chips counters.

• For the week ending August 30, foreign investors were net buyers of RM1,502mn, further strengthening their position from the previous week’s net buying of RM1,404mn.

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

• Our year-end target for the FBMKLCI remains on track at 1,720 points, supported by the overall positive market sentiments. However, we anticipate that profit-taking activities among recent significant outperformers, as well as ongoing sector rotation, will continue.

FBMKLCI Surge +2.6% WoW

The FBMKLCI remained strong, extending its rally by closing at 1,678.80 points, a gain of +43.06 points (+2.63%) WoW, continued to benefit from market volatility and increasing support from both foreign and local funds. For the week ending August 30, foreign investors were net buyers, purchasing RM1.5bn worth of shares, up from the previous week's net buying of RM1.4bn, indicating sustained interest in blue-chip stocks, especially on banking and utilities stocks. In contrast, local institutional and retail investors were net sellers during the week, with net selling values of RM1.3bn and RM245mn, respectively. Although buying support is expected to persist, bolstered by strong 2Q24 corporate earnings and the Ringgit's rally attracting foreign investment, we foresee some profittaking activity to linger. Sector rotation this week is likely to continue focusing on the Financials Services, with subsequent shifts anticipated towards the Construction, Plantation, and Consumer sectors based on relative strength and momentum analysis.

Market Movements Remain Healthy

Interest in emerging market equities has grown this year, contributing to the recent market upturn in Malaysia. We attribute this optimism primarily due to clear signals of an impending interest rate cut by the Federal Reserve, along with strong economic performance in Malaysia and the rally in the Ringgit. We anticipate that the Malaysian equity market will remain robust through the remainder of 2024 and into 2025, benefiting from market volatility that should support daily trading volume and value. As such, the benchmark KLCI index showed a significant WoW increase, driven by sustained interest in the Financial Services (+3.7% WoW), followed by strong performance in the Utilities (+2.3% WoW), and Telco & Media (+2.2% WoW) sectors, which were the best-performing sectors during Week 35 (refer to Table 5). On the flip-side, Technology (-5.4% WoW), Healthcare (-3.9% WoW), and Construction (-2.4% WoW) sectors turned to be the worst-performing sectors during the week under review.

Foreign Buying Remained Robust During Week 35

Foreign buying remained robust during Week 35 (26-30 August), with foreign investors recording a net buying amount of RM1,502mn, following the previous week's net buying value of RM1,404mn. As anticipated, foreign inflows into Malaysian equities were positive on nearly all trading days of the week. During this period, the sectors with the largest net buying by foreign investors were Financial Services (RM1.30bn), Utilities (RM259.7mn), and Construction (RM88.7mn). These gains were partially offset by net selling in the Technology (-RM116.9mn), Industrial Products (-RM93.9mn), and Transport & Logistics (-RM57.2mn) sectors. The top net buys by foreign investors were Public Bank, Maybank, and RHB, while the top net sells were MISC, TM, and SIME.

Corporate Earnings for 2Q24 – a Preview

We retain our positive view on the Malaysian equity market. Our view of the market remains unchanged, as we believe the KLCI is poised to see a new record set this year. Of the 69 companies under our coverage that released financial results as of 29 August 2024, 70% were in-line, 20% were stronger-than-expected while the remaining 10% reported lower-than-expected results (refer to Table 9).

Our analysis of the results reported up to 29 August 2024 indicates that most of the earnings downgrades stemmed from rubber glove companies. Notably, two rubber glove companies under our coverage, Top Glove and Supermax, fell short of our in-house projections, primarily due to lower average selling prices (ASPs), decreased sales volume, and higher operating costs. Both Top Glove and Supermax continued to report core losses, while Hartalega showed significant improvement relative to its peers. Currently, ASPs for Malaysian players range between USD 20-22 per 1,000 pieces, whereas Chinese competitors offer a price gap of USD 3-5 per 1,000 pieces. This substantial pricing disparity heightens competition for Malaysian players, exerting pressure on their market share and profitability.

Given that the composition of our BIMB universe significantly differs from the FBMKLCI due to our focus on shariah-compliant coverage, which excludes banks and gaming, our universe forecasts for the FBMKLCI (combination) show a net profit growth of 14.2% for 2024. This growth is primarily driven by earnings expansion in the Utilities (+49.4% YoY), Healthcare (+23.0% YoY), Industrial (+21.4% YoY), and Oil & Gas (+17.6% YoY) sectors (refer to Table 7).

Our View

This week, Bursa Malaysia is expected to trade within a relatively stable range, continuing its positive momentum alongside global equity markets. This momentum is being driven by domestic liquidity and sustained support from foreign investors, attributed to improved corporate earnings, positive economic performance in Malaysia, and the rally in the Ringgit. Key areas of focus this week will include Malaysia's Manufacturing PMI and OPR announcement, the Global Manufacturing PMI, the U.S. trade balance for July, as well as the US unemployment rate, and Nonfarm payrolls for August. Despite prevailing caution, we believe that the FBMKLCI's valuation remains attractive, presenting potential buying opportunities and strategic market positioning for the coming year.

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

Source: BIMB Securities Research - 2 Sept 2024