Poised for Sideways Consolidation Amid the 4Q23 Results Season 

KLCI: 1533.55 (5.2)
DOW: 38627.99 (-145.1)
MSCI Asia: 170.9 (1.8)
FCPO (RM): 3809 (-66)
BRENT (USD): 83.47 (0.61)
USDMYR: 4.7793 (-0.003)
SGDMYR: 3.5501 (0)
EURMYR: 5.1451 (0.012)
AUDMYR: 3.1178 (0.011)
GBPMYR: 6.0149 (0.011)
US: 10-yr yield (%) 4.2792 (0.049)
BNM:10-yr yield (%) 3.85 (0.03)

Asia/US. Led by the overnight record closing on S&P 500, the MSCI All Countries Asia Pacific Index jumped 1.8 pts to 170.9 (+2.1% WoW), aided by the weak US Jan retail sales, which bolstered the perception of a cooling US economy and potentially paving the way for a rate cut in June. Sentiment was also buoyed by increasing bets that the BOJ will further delay its tightening monetary policy as the Japanese economy unexpectedly entered a technical recession in the 4Q23. The Dow slipped 145 pts to close the week 44 pts lower at 38,628 following another hot Jan PPI (+0.3%, consensus: +0.1%), stoking fears that Fed’s rate-cut expectation may not arrive in 2Q24. Sentiment was also jolted by lingering tensions in the Middle East, as boycotts dampened sales and Red Sea shipping chaos threatened supply chains. This week, investors will closely monitor notable earnings from HD, NVDA and WMT, as well as key economic data including Jan FOMC minutes, Fed official speeches, and the Feb S&P Global PMIs for both the manufacturing and services sectors. 

Malaysia. Mirroring higher regional markets coupled with persistent foreign net inflows, KLCI gained 5.2 pts at 1533.6 (+21 pts WoW). Market breadth (gainers vs losers) remained positive at 1.23 vs 1.51 a day ago. Fund flow wise, foreign investors (+RM91m, YTD: +RM1.52bn) were the major net buyers followed by local retail investors (+RM11m, YTD: -RM837m) while the local institutions (-RM102m, YTD: -RM684m) were the sole net sellers.

Outlook The ongoing Feb reporting season, upbeat US inflation readings that scaled back investors’ optimism over Fed’s rate-cut expectation, a rebound in the USD as well as the reopening of Shanghai markets after a week-long holiday, are anticipated to weigh on sentiment in the near term. However, we remain hopeful for a reprieve in the KLCI in the long term, fuelled by (i) increased risk appetite by foreigners for the under-owned Bursa Malaysia (with foreign shareholding ticked up by 0.1% to 19.6% in Jan); (ii) brighter earnings outlook for KLCI components (CY23:- 0.3%, CY24: +8.2%); and (iii) stable earnings growth for S&P 500 amid soft landing narrative and decelerating inflation expectations (S&P 500 CY2023/CY2024/2025: 0.9%/11%/13%-Factset).

Source: Hong Leong Investment Bank Research - 19 Feb 2024