To retest 1,600-1,620 zones before profit taking amid Fed’s pivot and the return of foreign funds

KLCI: 1589.59 (9.3)
DOW: 38675.68 (450)
MSCI Asia: 177.55 (1.7)
FCPO (RM): 3844 (-2)
BRENT (USD): 82.96 (-0.71)
USDMYR: 4.7385 (-0.016)
SGDMYR: 3.5041 (0.006)
EURMYR: 5.0909 (0.002)
AUDMYR: 3.1189 (0.014)
GBPMYR: 5.9514 (0.001)
US: 10-yr yield (%) 4.5077 (-0.073)
Mal: BNM 10Y MGS (%): 3.94 (-0.02)

Asia/US. Following overnight gains on Wall St, most Asian markets rose before the key US non-farm payroll data, buoyed by upbeat results from QCOM and AAPL, alongside with Powell’s earlier remarks ruling out the possibility of another rate hike. Dow extended its 3rd day winning streak (+450 pts to 38,675), fuelled by a downbeat Apr jobs report (the lowest in 6M) and higher unemployment rate at 3.9%, coupled with a pair of sluggish Global PMI manufacturing & services data, boosting bets for an imminent rate cut. This week, key economic releases on tap are the US consumer confidence index, Fed officials’ speeches, China’s Caixin Composite PMIs, coupled with trade and inflation reports. Meanwhile, key earnings reports in focus are from VRTX, DIS, UBER, etc.

Malaysia. In line with Wall St gains as well as the return of foreign fund inflows for the 5th straight day, KLCI jumped 9.3 pts to 1,589.6, led by utility heavyweights as investors reacted positively to the news of Microsoft's potential RM10bn investment in Malaysia. Following the 8th consecutive week of RM5.48bn net outflow, foreigners returned for bargain hunting for a 2nd week (+RM375m, week: +RM1.05bn, YTD: -RM1.83bn) while local institutions (-RM333m, week: -RM943m, YTD: +RM4.16bn) and local retailers (-RM43m, week: -RM112m, YTD: -RM2.33bn) emerged as major net sellers.

Outlook Leading up to BNM’s meeting decision on 9 May, KLCI could extend its upward momentum in the near term, propelled by Wall St gains last Friday as weaker jobs data boost rate cut hopes and the return of foreign funds for a 2nd consecutive week. However, we may see potential profit taking activities after rallying 9.3% YTD near 1,600-1,620 (support: 1550-1,565) amid the upcoming May reporting season and the “Sell in May and go away” famous maxim. To recap May has historically been a weak month for the local bourse with the average 10 Y return of 1.3% and a 70% negative returns probability.

Source: Hong Leong Investment Bank Research - 6 May 2024