Building a base near 1,590-1,600 before marching higher towards 1,620-1,646 zones

KLCI: 1605.88 (3)
DOW: 39558.11 (126.6)
MSCI Asia: 178.49 (0.3)
FCPO (RM): 3804 (-11)
BRENT (USD): 82.38 (-0.98)
USDMYR: 4.7175 (-0.012)
SGDMYR: 3.4861 (-0.008)
EURMYR: 5.0914 (-0.008)
AUDMYR: 3.1187 (-0.007)
GBPMYR: 5.9174 (-0.008)
US: 10-yr yield (%) 4.4394 (-0.047)
BNM:10-yr yield (%) 3.891 (-0.008)

Asia/US. Asian markets ended mixed as investors awaited major inflation data from the US and Biden’s impending tariffs announcement targeting China’s strategic sectors like semiconductors, EV, batteries, steels and critical minerals. Meanwhile, news of another major property developer in China, Agile Group defaulted on bond payments largely offset optimism over Beijing outlining plans for a massive bond issuance to stimulate its economy. Ahead of the more closely watched CPI data tonight, Dow gained 127 pts at 39,558, shrugging off a hotter-than-expected PPI data as Powell continued to downplay the need to push rates higher, saying the current level of rates were restrictive and working to curb inflation. On the earnings front, BABA slid 6% amid a slide in earnings.

Malaysia. KLCI hovered within 1,601.4-1,607.4 band before closing +3 pts at 1,605.9, led by gains in YTL, YTLPOWR, IOICORP, MAXIS, TENAGA and PMETAL. Market breadth was positive for the 4th straight day at 1.16 vs 1.3 previously. Foreigners continued their net buying in 11th out of the last 12 sessions (+RM93m, May: +RM1.5bn, YTD: -RM751m) while local institutions (-RM90m, May: -RM1.23bn, YTD: +RM3.33bn) and retailers (-RM3m, May: -RM268m, YTD: -RM2.58bn) emerged as major net sellers.

Outlook. After surging 151 pts YTD, KLCI could waver in the short term as investors weighed the ongoing May reporting season (a reality-check as recent rally needs profit to justify) and overbought technical readings. Nevertheless, downside risk is likely to be cushioned near 1,577-1,596 territory (resistance: 1,620-1,646), underpinned by a resumption in net buying by foreigners (May MTD: +RM1.5bn, Mar & Apr: -RM4.25bn), undemanding KLCI CY24 P/E at 14.8x (vs 10Y average 18x), and strengthening local political stability and a gradual roll out of economic and fiscal reform initiatives to facilitate long-term growth and competitiveness.

VIRTUAL PORTFOLIO (FIG 1). We squared off our virtual portfolio position on GENTING (6% return) after hitting the RI upside target yesterday.

Source: Hong Leong Investment Bank Research - 15 May 2024