Still in sideways consolidation mode 

KLCI: 1538.42 (0.9)
DOW: 39282.33 (-31.3)
MSCI Asia: 176.81 (0.4)
FCPO (RM): 4222 (-14)
BRENT (USD): 86.25 (-0.5)
USDMYR: 4.7205 (-0.003)
SGDMYR: 3.512 (0.004)
EURMYR: 5.1233 (0.013)
AUDMYR: 3.0926 (0.009)
GBPMYR: 5.9722 (0.013)
US: 10-yr yield (%) 4.2316 (-0.014)
BNM:10-yr yield (%) 3.827 (-0.013)

Asia/US. Most Asian markets treaded water as investors awaited the data-packed week from the US (PCE inflation data and a series of Fed official speeches), China (industrial profit and PMI data) and Japan (inflation, retail sales and Tamura speech). Dow struggled to gain traction, recording its 3rd straight decline (-31 pts to 39,282) after reaching an all-time high of 39,987 on 21 Mar following mixed economic data, showing stronger-than-expected orders for durable goods, but waning consumer confidence. This week, investors will gain further insight about the path of future Fed policy from the Feb PCE inflation print (Fed’s preferred inflation gauge) and a slew of Fed official speeches, with the likelihood of a rate cut in June currently stood at 61% vs 55% a week ago.

Malaysia. Tracking a cautious undertone from regional markets, KLCI gained 0.9-pt to 1,538.4 after wavering within 1,532 and 1,540.5 while the small and midcaps stock continued to hog the limelight, reflected by the gains in the ACE (+0.60%), Small Cap (+0.47%) and Mid 70 (0.45%) indices. Hence, the market broadened out in a more sustainable fashion as market breadth (gainers/losers) rose to 1.21 vs 0.81 a day ago. Retail investors extended their net outflows for a 14th consecutive session (-RM43m, Mar: -RM184m, YTD: -RM1.20bn), followed by foreign institutions (-RM33m, Mar: -RM2.46bn, YTD: -RM459m) whilst local institutions (+RM76m, Mar: +RM2.6bn, YTD: +M1.66bn) emerged as the major net buyers. 

Outlook In the absence local fresh catalysts, we anticipate KLCI to trend sideways (support: 1,518-1,529) as we await US inflation 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 breadth. On foreign funds flow, after a notable weekly foreign outflow of RM1.51bn (week ended 8 Mar), foreign net outflows have decreased for a 2nd consecutive week. Any positive shift in foreign funds flow in the near term, especially considering the weak RM (vs USD) and the undemanding valuation of 12.8x CY24 P/E (vs 10Y average of 17.4x) following recent market consolidation, could potentially spur the KLCI to re-challenge the year-to-date high of 1,559. 

Source: Hong Leong Investment Bank Research - 27 Mar 2024