Further consolidation amid poor technical

KLCI: 1592.69 (-7.1)
DOW: 39134.76 (299.9)
MSCI Asia: 180.62 (-0.4)
FCPO (RM): 3942 (-17)
BRENT (USD): 85.71 (0.64)
USDMYR: 4.7095 (0.003)
SGDMYR: 3.482 (-0.002)
EURMYR: 5.0512 (-0.002)
AUDMYR: 3.1406 (0.002)
GBPMYR: 5.9842 (-0.007)
US: 10-yr yield (%) 4.2594 (0.037)
BNM:10-yr yield (%) 3.844 (0.005)

Asia/US. As Wall St was closed for the Juneteenth holiday, Asian markets ended mixed in listless trades as traders awaited BOE, SNB and Norges Bank meetings’ outcome to set the tone for global rates outlook. The S&P 500 (-13 pts to 5,473) and Nasdaq (-144 pts to 17,718) retreated after recent record highs amid pullbacks on AI-related tech mega caps while the Dow surged 299 pts to 39,134, mainly lifted by Salesforce, IBM and Amazon. Economic data released pointed to a slowing economy, with weekly jobless claims ended near 10M high while housing starts, building permits and retail sales declined in May. Meanwhile, most Fed officials continued to emphasize the need for more evidence of cooling inflation before lowering rates.

Malaysia. After rallying 145 pts YTD, KLCI continued its profit taking consolidation (-7.1 pts to 1,592.7) for a 4th straight session, in conjunction with the traditional lull period in June for KLCI (average 10Y/20Y: -1.2%/-0.3%) and a resumption in foreign selling. Trading volume was 5.03bn shares (-9.7% DoD) shares valued at RM3.42bn (-15.8% DoD) while market breadth was negative for a 4th consecutive day at 0.43 vs 0.38 a day ago. Foreigners were the major net sellers for a 4th straight session (-RM65m, June: +RM471m) alongside local institutions (-RM28m, June: -RM223m) while local retailers (+RM93m, June: -RM245m) emerged as major net buyers. 

Outlook In the absence of meaningful impetus, KLCI could extend its consolidation (+138 pts YTD and 56 pts 2QTD) amid weakening technical readings as investors weigh the impact of diesel subsidy rationalisation exercise, Fed’s 2H rate-cut trajectory coupled with a slew of economic and trade pacts between China and Malaysia following Li Qiang’s visit to Malaysia. Nevertheless, we remain cautiously optimistic that after a brief consolidation, KLCI will revisit 1,600-1,610-1,632 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 - 21 Jun 2024