In consolidation mode pending fresh leads

KLCI: 1559.8 (-6.3)
DOW: 38835 (57) 18 June closing
FCPO (RM): 3940 (57)
BRENT (USD): 85.07 (-0.26)
USDMYR: 4.7065 (-0.01)
SGDMYR: 3.4842 (0.00)
EURMYR: 5.0534 (0.00)
AUDMYR: 3.139 (0.02)
GBPMYR: 5.9916 (0.01)
US: 10-yr yield (%) 4.22 (0.0)
BNM:10-yr yield (%) 3.86 (-0.02)

Asia/US. In line with record highs on the S&P 500 and Nasdaq, Asian markets ended mostly higher on AI optimism, led by gains from Hong Kong (2.9%), Taiwan (2%) and Korea (1.2%). Wall St was closed overnight due to the Juneteenth holiday. On 18 June, Dow rose 57 pts to 38,835 while the S&P 500 (+14 pts to 5,487) and Nasdaq (+3 pts to 17,860) notched another new records. Major economic data on 20 & 21 June are weekly jobless claims, building permits as well as S&P Global Manufacturing & Services PMIs. Meanwhile, a chorus of Fed officials continued to emphasise the need for more evidence of cooling inflation before lowering rates. 

Malaysia. After rallying 152 pts YTD, KLCI continued its profit taking consolidation (-6.3 pts to 1,559.8) for a 3rd straight session, in conjunction with the traditional lull period in June for KLCI (average 10Y/20Y: -1.2%/-0.3%) and lack of major fresh leads. Trading volume was 5.57bn shares (-5.9% DoD) shares valued at RM4.06bn (-2.2% DoD) while market breadth was negative for a 3rd day at 0.38 vs 0.63 a day ago. Foreigners were the major net sellers for a 3rd consecutive session (-RM121m, June: +RM536m) whilst local institutions (+RM67m, June: -RM195m) and local retailers (+RM54m, June: -RM341m) emerged as major net buyers. 

Outlook Pending further fresh catalysts, KLCI may extended its consolidation as investors continue to weigh the impact of diesel subsidy rationalisation exercise and Fed’s 2024 rate-cut trajectory. Nevertheless, we remain cautiously optimistic that after a brief consolidation, KLCI will revisit 1,632 (YTD high)-1,650 levels, buoyed by (i) resilience in corporate earnings and a less volatile RM; (ii) policy tailwinds amid clearer policy frameworks in attracting higher value-added FDIs along with trends such as China + 1; (iii) political stability to expedite economic and fiscal reforms to foster long-term growth and improve financial standing. 

Source: Hong Leong Investment Bank Research - 20 Jun 2024