Robust foreign inflows may spur KLCI to 1,570-1,580 zones before profit taking emerges 

KLCI: 1555.59 (17)
DOW: 38563.8 (-64.2)
MSCI Asia: 171.37 (0.3)
FCPO (RM): 3878 (18)
BRENT (USD): 82.34 (-1.22)
USDMYR: 4.7987 (0.012)
SGDMYR: 3.5682 (0.011)
EURMYR: 5.1817 (0.024)
AUDMYR: 3.1451 (0.014)
GBPMYR: 6.0481 (0.01)
US: 10-yr yield (%) 4.2753 (-0.004)
BNM:10-yr yield (%) 3.86 (0.01)

Asia/US. Asian markets ended mixed on risk-off mood, as investors weighed the fading chances for early Fed rate cuts due to US red-hot inflation, and the PBOC’s commitment to revive China’s struggling economy by delivering a record reduction (most aggressive since 219) of its 5Y LPR by 25 bps to 3.95% (vs forecast 15 bps). Ahead of the widely-watched NVDA results tonight, the Dow fell 64 pts to 38,564 as investors assessed the mixed results by HD and WMT. Sentiment turned edgy prior to the FOMC minutes release tonight and comments from Fed officials for further hints on when the Fed will start cutting interest rates. 

Malaysia. Tracking the rally in most of the ASEAN bourses and persistent foreign net inflows, KLCI surged 17 pts to a 19M high at 1,555.6 (+100.9 pts YTD), led by buying interests on PCHEM, PBBANK, MAYBANK, YTLPOWR and TENAGA. Market breadth was positive at 1.45 vs 0.81 a day ago, underpinned by a 42% jump in daily trade value to RM2.94bn. Foreign investors recorded its single largest daily net inflow in two years (+RM414m, YTD: +RM2bn) while the local retail investors (-RM112m, YTD: -RM949m) and local institutions (-RM302m, YTD: -RM1.05bn) emerged as the major net sellers.

Outlook Foreigners’ underweight position on Malaysia is one of the largest in the past decade but we believe this has bottomed amid recent strong returns by foreign investors (4th consecutive month of net inflows), supported by an uptick in foreign shareholding (Jan: 19.6%, Dec 23: 19.5%, Nov 23: 19.5%) and YTD foreign net inflows amounted to ~RM2bn (vs -RM2.6bn in 2023). 

Moreover, risk appetite for EMs should resurface with the (i) Fed’s eventual pivot; (ii) stronger and a stronger Malaysia GDP growth (2024: 4.8%, 2023: 3.7%) in line with global growth of 3.1% (IMF 2024: 3.1%); (iii) a more stable political climate domestically; and (iv) China’s indications of strong measures to revitalise its slowing economy will spur positive spillover effects on key trading nations like Malaysia. We expect persistent buoyant foreign net buying could lift KLCI towards 1,570-1,580 zones before profit taking emerges.
 

Source: Hong Leong Investment Bank Research - 21 Feb 2024