Riding on the US Market Overnight Rebound

KLCI: 1529.33 (-2)
DOW: 38424.27 (151.5)
MSCI Asia: 167.57 (-0.5)
FCPO (RM): 3959 (11)
BRENT (USD): 81.6 (-1.17)
USDMYR: 4.7865 (0.023)
SGDMYR: 3.5461 (0.006)
EURMYR: 5.1218 (-0.007)
AUDMYR: 3.1 (-0.004)
GBPMYR: 6.002 (-0.026)
US: 10-yr yield (%) 4.2554 (-0.059)
BNM:10-yr yield (%) 3.841 (0.024)

Asia/US. Tracking the overnight slump in the US market, Asian markets ended lower as sentiment was impacted by a higher-than-expected US inflation reading, which tempered expectations for a Federal Reserve interest rate cut. Meanwhile, investors are closely monitoring the outcome of the presidential election in Indonesia, a key economy in Southeast Asia. Overnight, the Dow rebounded by 151.5 points, or 0.4%, reaching 38,424, while the Nasdaq surged by 203 points, or 1.30%, hitting 15,859. Investors seized the opportunity to buy the dip in stocks, particularly in the tech sector, following a sell-off the previous day triggered by a stronger-than-anticipated U.S. inflation reading. Concurrently, Fed Vice Chair for Supervision Michael Barr remarked that the hotter-than-expected inflation in January indicates that the United States' journey back to 2% inflation "may be a bumpy one".

Malaysia. Despite recovering from an intraday low of 1521 with late buying support, the KLCI remained in negative territory, closing 2 pts lower at 1529.3. Market breadth turned negative, with 503 losers outnumbering 387 gainers, while turnover reached 2.80 bn shares valued at 1.90bn ringgit. Fund flow wise, Foreign investors (+RM42m, YTD: +RM1.40bn) and local retail investors (+RM18m, YTD: -RM845m) were the net buyers while local institutions (-RM59m, YTD: -RM557m) was the net sellers.

Outlook: Higher-than-expected US inflation reading that tempered investors optimism over Fed’s rate-cut expectation and led to an uptick bias in the USD, will likely weight the sentiment in Bursa Malaysia market over the near term. However, we remain hopeful for a reprieve in the KLCI should these concerns subside, fuelled by (i) increased risk appetite by foreigners for the under-owned Bursa Malaysia (with foreign shareholding at all-time low of 19.5% in Dec 2023); (ii) brighter earnings outlook for KLCI components (CY23:- 0.3%, CY24: +8.2%); and (iii) soft landing narrative in the US amid decelerating inflation (S&P 500 CY2024/2025: 11%/9%, Factset).

Source: Hong Leong Investment Bank Research - 15 Feb 2024