Bullish breakout above 1,466-1,471 hurdles may spur KLCI to revisit 1,494-1,502 next

KLCI: 1477.26 (14.9) DOW: 37440.34 (10.1) MSCI Asia: 165.74 (-0.2) FCPO (RM): 3663 (6) BRENT (USD): 77.59 (-0.66) USDMYR: 4.635 (0.002) SGDMYR: 3.4923 (0.001) EURMYR: 5.0839 (0.017) AUDMYR: 3.1256 (-0.001) GBPMYR: 5.8964 (0.046) US: 10-yr yield (%) 3.9988 (0.083) BNM:10-yr yield (%) 3.86 (0.06)

Asia/US. Despite a positive private survey on the services sector in China (climbed to a 5M high of 52.9), Asian markets ended lower on doubts over the timing of Fed’s rate cuts and Fitch’s downgrade on China’s four major state-owned asset managers. Ahead of the release of the key US non-farm payrolls data tonight and the start of the 4Q23 results season next week, the Dow surrendered early gains of 286 pts to end +10 pts at 37,440 while the US10Y bond yield rose 8 bps to 4%. Investors are searching for clues on how soon and deeply the Fed can start cutting interest rates following upbeat US private ADP jobs data and jobless claims fell to 2M low, given that the Dec FOMC minutes 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 mixed regional markets, KLCI rallied 14.9 pts to 1,477.3, led by strong institutional buying interests. Market breadth remained positive for a 3rd straight day albeit lower at 1.49 vs 2.03 a day ago, supported by a 22% jump in trading value to RM3.82bn (+63% higher than average trading value in Dec). Foreign investors (+RM61m, Jan24: +RM396m, Dec: +RM257m) and local institutions (+RM109m, Jan24: -RM116m, Dec: -RM165m) emerged as major net buyers whilst local retailers (-RM121m, Jan24: -RM280m, Dec:-RM92m) continued their net selling. 

Outlook Following the strong breakout above our envisaged 1,465-1,471 hurdles, we expect KLCI to march higher 1,494-1,502 zones amid optimism that government’s continuous reforms and execution of the macro blueprints launched in 2023 would bring the country’s economy and balance sheet back on stronger footing. Meanwhile, sentiment is likely to improve in anticipation of a revival in foreign shareholding (3rd straight month of net inflows amounting to RM2.2bn from Nov-Jan24) from an all-time low Dec’s foreign shareholding of 19.5%, and rising risk appetite for the laggard Bursa Malaysia with the Fed’s pivot and undemanding KLCI’s CY 2024 P/E at 13.3x (vs 10Y mean 16.6x). 

Source: Hong Leong Investment Bank Research - 5 Jan 2024