Upside bias to retest 1,623-1,632 zones

KLCI: 1616.75 (1.4)
DOW: 39308 (-23.8)
MSCI Asia: 184.61 (2.1)
FCPO (RM): 4052 (-15)
BRENT (USD): 87.43 (0.09)
USDMYR: 4.709 (-0.011)
SGDMYR: 3.4841 (0.005)
EURMYR: 5.0848 (0.009)
AUDMYR: 3.1657 (0.016)
GBPMYR: 6.0038 (0.012)
US: 10-yr yield (%) 4.3587 (0)
BNM:10-yr yield (%) 3.867 (0.003)

Asia/US. Copying record highs on the S&P 500 and Nasdaq, Asian markets ended mostly higher as a raft of weak US economic data lifted hopes that the Fed will begin cutting rates in Sep. However, China markets fell amid economic jitters, with focus now turning to the upcoming Third Plenum (July 15-18) for potential measures to stimulate the slowing economy. Wall St was closed due to Independence Day holiday. The latest June FOMC minutes revealed that while inflation is cooling, policymakers will not reduce rates until ‘greater confidence’ inflation is moving to 2% goal. On economic front, all eyes are on the June nonfarm payrolls report tonight to offer economic insights for the Fed rate policy, with the Fed projects only one rate cut this year and four reductions in 2025.

Malaysia. Mirroring the positive leads from Wall St and regional markets coupled with a strong foreign buying, KLCI surged 17.4 pts to 1,615.3, supported by buying interests in YTL, YTLPOWR, MISC, CIMB, TENAGA and CDB. Market breadth remained positive for the 4th consecutive day at 2.77 vs 1.56 previously while daily volume soared 47% to 5.39bn shares valued at RM4bn. For the 5th straight day, foreigners (+RM86m, July: +RM383m, YTD: -RM445) emerged as major net buyers while local retailers (-RM64m, July: -RM427m, YTD: -RM3.81bn) alongside local institutions (-RM22m, July: +RM44m, YTD: +RM4.26bn) were the major net sellers. 

Outlook In wake of the bullish downtrend channel brekaout, KLCI could stage further oversold rebound (resistance levels: 1,623-1,632-1,650) in a seasonally positive month of July (10Y/20Y: +2.7%/+2.4%), buoyed by (i) expectations of resilient corporate earnings and economic growth; (ii) influx of planned investments; (iii) government’s reforms aimed at long-term economic and fiscal improvements, and (iv) exuberance in investment themes surrounding tourism recovery, energy transition, Johor’s reinvigoration, disposable income boosters (following the introduction of the EPF Account 3 and pay rise for civil servants), and trade diversion/China+1 strategy. On the downside, major supports are pegged at 1,588-1,600-1,605 range. 

VIRTUAL PORTFOLIO We took profit on AWC (4.8% return) yesterday after hitting R1  upside target.

Source: Hong Leong Investment Bank Research - 5 Jul 2024