Critical 1Q24 results awaited to propel rally towards 1,626-1,646 range

KLCI: 1616.62 (5.5)
DOW: 40003.59 (134.2)
MSCI Asia: 181.86 (0.2)
FCPO (RM): 3892 (88)
BRENT (USD): 83.98 (0.71)
USDMYR: 4.6877 (0.005)
SGDMYR: 3.4797 (-0.003)
EURMYR: 5.0836 (-0.007)
AUDMYR: 3.1188 (-0.009)
GBPMYR: 5.9326 (0.0)
US: 10-yr yield (%) 4.4198 (0.045)
BNM:10-yr yield (%) 3.85 (0.002)

Asia/US. Asian markets ended in a tepid mode last Friday (+0.1% to 181.86) as warnings from a string of Fed officials’ restrictive remarks saw investors reassess expectations of interest rate cuts, while middling economic data from China increased caution. Dow added 134 pts to close at a record high of 40,003 as under consensus CPI data and a mixed bag of economic data boosted rate cuts bets, which overshadowed a slew of Fed speaks last week that called for higher for longer rates to assess incoming data. Key economic data on the tap this week are US S&P Global’s PMI index, May FOMC’s minutes, new and existing home sales, and durable goods orders.

Malaysia. In wake of the upbeat 1Q24 GDP and persistent foreign net inflows, KLCI rose 5.5 pts to end the week 15.9 pts higher at 1,616.6. Daily volume jumped 19.3% to 7.23bn shares valued at RM4.54bn while market breadth surged to 2.26 vs 1.46 previously. Foreigners continued their net buying in 14 out of 15 sessions (+RM184m, May: +RM2.25bn, YTD: +RM2m) while local institutions (-RM8m, May: -RM1.49bn, YTD: +RM3.06bn) and retailers (-RM178m, May: -RM755m, YTD: -RM3.06bn) were the major net sellers.

Outlook After surging 81 pts/5.2% 2QTD (YTD: +162 pts/11.1%), KLCI could waver in the short term as investors weigh the critical May reporting season in the final two weeks (a reality-check to sustain further gains). Nevertheless, we are cautiously optimistic that the index will revisit 1,626-1,646 zones after breaking out of its 8-day consolidation, underpinned by increased foreign inflows for the 4th consecutive weeks (May MTD: +RM2.25bn, Mar & Apr: -RM4.25bn), a recovering Ringgit, Fed’s rate-cut optimism, undemanding KLCI CY25 P/E at 13.5x (vs 10Y average 18.5x), coupled with political stability and ongoing economic and fiscal reforms to foster long-term growth and competitiveness.
 

Source: Hong Leong Investment Bank Research - 20 May 2024