May drift lower towards 1,575-1,583 before staging a technical rebound

KLCI: 1590.37 (-2.3)
DOW: 39150.33 (15.6)
MSCI Asia: 179.27 (-1.4)
FCPO (RM): 3900 (-59)
BRENT (USD): 84.91 (-0.33)
USDMYR: 4.7127 (0.003)
SGDMYR: 3.48 (-0.002)
EURMYR: 5.0417 (-0.01)
AUDMYR: 3.135 (-0.006)
GBPMYR: 5.9631 (-0.021)
US: 10-yr yield (%) 4.2554 (-0.004)
BNM:10-yr yield (%) 3.851 (0.007)

Asia/US. Asian markets ended mixed as investors assessed an uneven economic recovery and perceived inadequate policy support in China. In Japan, tepid manufacturing and services activities, along with slower-than-expected core inflation added to the cautious sentiment. The S&P 500 (-8 pts to 5,465) and Nasdaq (-28 pts to 17,693) moderated from recent record highs as AI-related tech mega caps took a breather while the Dow inched up 15 pts to 39,150, boosted by the upbeat S&P Global’s PMIs for manufacturing and services, challenging the view of a moderating economy following softer unemployment claims, housing starts, and retail sales. This week, major spotlight is the May core PCE data (28 June), together with housing-market data, durable goods orders and speeches by several Federal Reserve officials.  

Malaysia. KLCI continued its profit taking consolidation (-2.3 pts to 1,590.4) for a 5th straight session, dampened by a decline in Malaysia’s global competitiveness ranking (from 27th to 34th and lower than 25th Thailand and 27th Indonesia) and a resumption in foreign selling for a 5th consecutive session. Trading volume was 5.83bn shares (+15.9% DoD) shares valued at RM6.06bn (+77.2% DoD) while market breadth rebounded to 1.02 after slipping below 1 four days in a row. Foreigners were the major net sellers (-RM176m, WoW: -RM442m, June: +RM295m) alongside local retailers (-RM2m, WoW: +RM168m, June: -RM250m) whilst local institutions (+RM178m, Wow: +RM274m, June: -RM45m) emerged as major net buyers.  

Outlook 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 resumption of foreign selling. Nevertheless, we remain cautiously optimistic that after a brief consolidation, KLCI will revisit 1,600-1,632 levels, buoyed by (i) resilience in corporate earnings; (ii) proactive policies in attracting higher value-added FDIs; (iii) political stability to expedite economic and fiscal reforms to foster long-term growth and improve financial standing.

Source: Hong Leong Investment Bank Research - 24 Jun 2024