Volatility ahead as we navigate the peak of the May results season

KLCI: 1622.09 (-5.4)
DOW: 39671.04 (-201.9)
MSCI Asia: 180.84 (-0.3)
FCPO (RM): 3868 (-53)
BRENT (USD): 81.9 (-0.98)
USDMYR: 4.6968 (0.011)
SGDMYR: 3.4876 (0)
EURMYR: 5.1002 (-0.006)
AUDMYR: 3.1285 (-0.005)
GBPMYR: 5.9727 (-0.003)
US: 10-yr yield (%) 4.4218 (0.01)
BNM:10-yr yield (%) 3.856 (0.008)

Asia/US. Most Asian stocks ended mixed as investors awaited more cues on US interest rates from the May FOMC meeting minutes (24 May) and cooling optimism over more stimulus measures from Beijing, offset hopes that AI-heavyweight NVDA could meet sky-high expectations (set to report after the market close on 22 May). The Dow lost 202 pts to 36,672 after the May FOMC minutes fuelled concerns over sticky inflation and fear that the central bank may push off cuts. On earnings front, AI darling NVDA rose 7% in extended trading after posting upbeat 1QFY25 results and announced a 10:1 stock split.

Malaysia. In line with the mixed regional markets amid Fed officials’ restrictive remarks and KLCI overbought technical readings, KLCI lost 5.4 pts to 1,622.1 after rallying 51.5 pts in May to near 3Y high on 20 May. Market breadth slipped to 0.65 vs 1.83 previously while daily volume slid 22% to 5.43bn shares valued at RM4.22bn. After net buying RM975m in the last 7 straight day, foreigners disposed RM26m (May: +RM2.32bn, YTD: +RM78m) alongside retailers (-RM76m, May: -RM897m, YTD: -RM3.21bn) while local institutions (+RM102m, May: -RM1.43bn, YTD: +RM3.13bn) emerged as net buyers after net selling RM510m in the last seventh straight session. 

Outlook. After surging 86 pts/5.6% in 2QTD (YTD: +167 pts/11.5%), KLCI could face formidable hurdles near 1,630-1,650 territory as investors weigh the peak of the May results season in the final two weeks (a reality-check to sustain further gains). Nevertheless, we expect any profit taking pullback is likely to be cushioned by a steady increase in foreign inflows (May MTD: +RM2.3bn, Mar & Apr: -RM4.25bn), a recovering Ringgit, Fed’s rate-cut optimism, undemanding KLCI CY25 P/E at 13.6x (vs 10Y average 18.5x), coupled with political stability and ongoing economic and fiscal reforms to foster long-term growth and competitiveness.

VIRTUAL PORTFOLIO On 21 May, we squared off our virtual portfolio stock on LGMS (12.6% return) after hitting R2 upside target.
 

Source: Hong Leong Investment Bank Research - 23 May 2024