Strong Foreign Net Inflows May Spur KLCI to Surpass the Critical 1,466-1,471 Hurdles

KLCI: 1462.37 (9.3) DOW: 37430.19 (-284.8) MSCI Asia: 165.97 (-2.2) FCPO (RM): 3658 (37) BRENT (USD): 78.25 (2.36) USDMYR: 4.6328 (0.027) SGDMYR: 3.4911 (0.009) EURMYR: 5.0666 (-0.007) AUDMYR: 3.1269 (-0.015) GBPMYR: 5.85 (-0.007) US: 10-yr yield (%) 3.9162 (-0.01) BNM:10-yr yield (%) 3.79 (0.04)

Asia/US. Tracking a weak Wall St overnight, Asian markets ended lower, led by selloff in technology stocks after Barclays downgraded Apple amid iPhone demand concerns. Sentiment was also cautious as investors braced for a swathe of US data that could show whether bets on interest-rate cuts this year are justified. Ahead of the release of the key US jobs data (5 Jan) and the start of 4Q23 results season next week, Dow slid 285 pts to 37,430 on profit taking after rallying 13% in 2023. Investors curbed their optimism amid a mixed economic reports of ISM Manufacturing PMI (above forecasts) and job openings (below expectations) coupled with uncertainty in the Dec FOMC minutes that offered little clue when the rate cuts might occur and reaffirmed that policy must remain at a restrictive level to achieve its 2% inflation target.

Malaysia. Bucking the weak regional markets, KLCI jumped as much as 12.6 pts before paring its gains to 9.3 pts at 1,462.4, led by bargain hunting activities on selected heavyweights i.e. YTLPOWR, PCHEM, PMETAL, YTL, CIMB and MISC. Market breadth (gainers/losers ratio) was bullish at 2.03 vs 1.11 a day ago, supported by a 56% surge in trading value to RM3.12bn. Foreign investors turned net buyers after two days of net selling (+RM358m, YTD24: +RM335m, Dec: +RM257m) whilst local institutions (-RM237m, YTD24: -RM225m, Dec: -RM165m) and local retailers (-RM121m, YTD24: -RM110m, Dec:-RM92m) emerged as the major net sellers. 

Outlook Despite softer global environment and mildly higher Malaysia’s inflation target in 2024 (due to subsidy rationalisation), Bursa Malaysia should perform better in the medium to long term, led by continuous execution of the macro blueprints launched in 2023, as well as a persistent fiscal reforms to bring the country’s balance sheet back on stronger footing. Further key catalysts are: (i) tail-end of global monetary policy tightening; (ii) continued robust recovery in tourists to Malaysia; (iii) economic transformation via the NETR, NIMP2023 and reinvigoration of developments in Johor; (iv) persistent foreign net inflows (3rd straight month of net inflows (Nov-Jan24: +RM2.14bn) and (v) rising FDI momentum and stronger core CY24 earnings growth. Major supports for Jan are 1,430-1,450 whilst stiff resistances are located near 1,470-1,490-1,500 zones. 

Source: Hong Leong Investment Bank Research - 4 Jan 2024