Range bound consolidation prevails amid prevailing headwinds

KLCI: 1544.76 (4.3)
DOW: 37775.38 (22.1)
MSCI Asia: 170.4 (1.1)
FCPO (RM): 3979 (-5)
BRENT (USD): 87.11 (-0.18)
USDMYR: 4.7855 (-0.008)
SGDMYR: 3.5189 (0)
EURMYR: 5.1061 (0.006)
AUDMYR: 3.0835 (0.004)
GBPMYR: 5.9687 (-0.007)
US: 10-yr yield (%) 4.6326 (0.045)
BNM:10-yr yield (%) 3.959 (0.019)

Asia/US. As fears of higher-for-longer Fed rates and escalating geopolitical tensions in the Middle East sparked a nearly week-long rout, Asian markets ended mostly higher on the back of bargain buying activities, boosted by a retreat in USD after G7 finance chiefs reaffirmed their stance that excessive currency volatility was undesirable. Dow surrendered an early 330-pt gain to end +22 pts at 37,775 while US10Y bond yield climbed 5 bps to 5M high at 4.63% as positive economic readings (jobless claims: in line; Philadelphia Fed factory: topped estimates) and hawkish Fedspeak from John Williams reinforced speculation that interest rates will be higher for longer. On earnings front, NFLX price dropped as revenue guidance below expectations. Sentiment remained edgy as Israel’s PM said his country reserved the right to protect itself after Iran’s unprecedented attack last week.

Malaysia.  After a 4-day losing streak of 25 pts, KLCI staged a 2nd day of relief rebound to close +4.3 pts at 1,544.8, led by bargain hunting activities on banking, utilities and telco stocks. Market breadth was positive for a 2nd day at 1.22 vs 2.25 a day ago. Foreigners’ exodus continued the 8th consecutive day (-RM137m, Apr: -RM2.01bn, YTD: -RM2.88bn) alongside with the local retailers (-RM77m, Apr: -RM325m, YTD: -RM1.63bn). Conversely, local institutions (+RM214m, Apr: +RM2.33bn, YTD:RM4.52bn) emerged as major net buyers for the 10th straight session. 

Outlook. Despite external headwinds and Dow’s ongoing consolidation (-5.3% from all-time high 39,887), KLCI (-1.3% from 52w high 1,565) is building a good base near lower BB at 1,528 levels. We reiterate our view that local bourse may extend its consolidation for the time being until a decisive breakout above 1,558-1,565 hurdles as investors recalibrate (i) heightened geopolitical tensions (Israel-Iran and Russian-Ukraine), (ii) a shift in Fed’s rate cut policy, (iii) ongoing US 1Q24 results season, (iv) RM weakness and foreign investors’ exodus, and (v) potential earnings disappointment from the imminent 1Q24 results season. 

Source: Hong Leong Investment Bank Research - 19 Apr 2024