Small and midcap stocks shine as blue chips consolidate 

KLCI: 1537.54 (-4.9)
DOW: 39313.64 (-162.3)
MSCI Asia: 176.43 (-1)
FCPO (RM): 4274 (27)
BRENT (USD): 86.75 (1.32)
USDMYR: 4.7238 (-0.013)
SGDMYR: 3.5083 (-0.003)
EURMYR: 5.1101 (-0.013)
AUDMYR: 3.0835 (-0.002)
GBPMYR: 5.9588 (-0.003)
US: 10-yr yield (%) 4.2454 (0.047)
BNM:10-yr yield (%) 3.84 (-0.011)

Asia/US. MSCI All Countries Asia Pacific index lost 0.57% to 176.43 after rallying 1.6% WoW, as investors weighed (i) the speculative selloff in JPY (vs USD) even after the BOJ raised interest rates for the first time in 17 years and ended 8 years of negative rates, (ii) ahead of the data-packed week from the US (PCE inflation data and Powell’s speech), China (industrial profit and PMI), Japan (inflation, retail sales and Tamura speech) and (iii) heightened US-China tension after a report that China has adopted new guidance to limit the use of US-made microprocessors and servers in government computers. Dow consolidated its gains for a 2nd day (-163 pts to 39,313) after hitting all-time high on 21 Mar, as investors will gain further insight about the path of future Fed policy inflation from the Feb PCE inflation print (Fed’s preferred inflation gauge) and a slew of Fed official speeches.

Malaysia. While KLCI wavered (-4.9 pts to 1,537.5) in line with regional peers, trading interests shifted to small and midcap stocks, reflected by the gains in the ACE (+0.51%), Small Cap (+0.1%) and Mid 70 (0.37%) indices. After net selling RM2.89bn from 1-20 Mar, foreign investors turned net buyers for a 3rd straight day (+RM14m, Mar: -RM2.42bn, YTD: -RM426m) whilst local institutions (-RM12m, Mar: +RM2.57bn, YTD: +RM1.59bn) and local retailers (-RM2m, Mar: -RM141m, YTD: -RM1.16bn) emerged as the major net sellers. 

Outlook Pending the fresh domestic catalysts, we expect KLCI to trend sideways this week (support: 1,518-1,529) as we await US PCE data and Powell’s speech for clearer insight of Fed’s future policy. While the benchmark may continue to consolidate further, rotational plays on small and midcaps should sustain broader market momentum. On foreign funds flow, after the significant weekly foreign outflow of RM1.51bn (week ended 8 Mar), foreign net outflows continued to decrease for a 2nd consecutive week. As foreigners were net buyers for a 3rd consecutive day, a positive shift in foreign funds flow in the near term amid weak RM (vs USD) and undemanding valuation of 12.7x CY24 P/E (vs 10Y 17.2x) after recent market consolidation could spur KLCI to re-challenge YTD high of 1,559 and 1,580 next.

VIRTUAL PORTFOLIO We closed our virtual positons on MNHLDG (2.3% gain) and FRONTKN (5.2% gain) yesterday amid weakening technicals.
 

Source: Hong Leong Investment Bank Research - 26 Mar 2024