Bullish Wall St and Sustained Foreign Net Inflows to Cushion a Healthy Consolidation

KLCI: 1545.49 (-6.9)

DOW: 39069.11 (456.9)

MSCI Asia: 172.88 (1.8)

FCPO (RM): 3851 (12)

BRENT (USD): 83.67 (0.64)

USDMYR: 4.7755 (-0.019)

SGDMYR: 3.5614 (-0.006)

EURMYR: 5.1826 (0.005)

AUDMYR: 3.1435 (0.001)

GBPMYR: 6.0532 (0.007)

US: 10-yr yield (%) 4.3207 (0.002)

BNM:10-yr yield (%) 3.87 (0.021)

Asia/US. Led by an all-time high in the NIKKEI 225 and a continued surge in the SHCOMP, most Asian markets ended higher. The rally was propelled by a frenzy surrounding tech stocks, ignited by NVDA's stellar earnings report and robust sales forecast, overshadowed concerns of the Fed’s restrictive policy stance. Dow ended at record high (+457 pts to 39,069), buoyed by a wave of AI-fuelled optimism following NVDA’s robust earnings and guidance. Sentiment was also bolstered by a set of solid manufacturing, housing and labour-market data, unfazed by the hawkish Fedspeak and increased optimism in the resilience of the US economy amid the backdrop of elevated interest rates.

Malaysia. Bucking higher regional markets, KLCI extended its losses for a 2nd day (-6.9 pts to 1,545.5), as sentiment was tempered by persistent ringgit’s weakness and a healthy profit taking after rallying 97 pts YTD. On funds flow, foreign investors booked their net inflows for the 16th consecutive session (+RM68m, YTD: +RM2.13bn) followed by the local retailers (+RM4m, YTD: -RM940m). Meanwhile, the local institutions sustained their net selling for the 12th straight session (-RM72m, YTD: -RM1.2bn).

Outlook Foreigners’ underweight position on Malaysia is one of the largest in the past decade but we believe this has bottomed amid recent persistent net inflows by foreign investors (4th consecutive month), supported by an uptick in foreign shareholding to 19.6% in Jan (vs all-time low of 19.5& in Dec 23) and YTD foreign net inflows amounted to RM2.14bn (a reversal from -RM2.6bn in 2023).

Moreover, risk appetite for EMs should resurface with the (i) Fed’s eventual pivot; (ii) stronger Malaysia GDP growth (2024: 4.8%, 2023: 3.7%) in line with global growth of 3.1% in 2024 (IMF 2023: 3.1%); (iii) a more stable local political climate; and (iv) expectations of more aggressive measures from China to revive its slowing economy. Hence, we believe the sustained strong buying interests from foreigners would cushion downside risk (support: 1,522-1,533; resistance: 1,570-1,580-1,600) triggered by a healthy profit taking consolidation after recent rally.

Source: Hong Leong Investment Bank Research - 23 Feb 2024