Stiff hurdles at 1,646-1,660 zones ahead of the Aug results season

KLCI: 1636.55 (2.7)
DOW: 40287.53 (-377.5)
MSCI Asia: 183.33 (-2.5)
FCPO (RM): 3961 (24)
BRENT (USD): 83.06 (0.43)
USDMYR: 4.6858 (0.016)
SGDMYR: 3.4848 (0.002)
EURMYR: 5.0984 (-0.006)
AUDMYR: 3.1348 (-0.01)
GBPMYR: 6.0481 (-0.017)
US: 10-yr yield (%) 4.2389 (0.037)
BNM:10-yr yield (%) 3.818 (0.013)

Asia/US. Asian markets fell last Friday, mainly due to (i) a shift from the high-flying AI-related stocks to “Trump Trades” amid growing expectations of a Trump 2.0 presidency, (ii) concerns over tighter US restrictions on chip sales to China, (iii) uncertainty over the BOJ’s plans to raise interest rates following a rise in June’s core CPI and (iv) awaiting further policy clarity from China after the 3rd plenary session to boost its slowing economy. The Dow slid 378 pts to 40,287 (+287 pts WoW) amid political uncertainties and shifting monetary policy expectations, prompting a rotation out of mega-cap tech stocks and broadening market breadth. Additionally, CRWD plunged 11% after the cybersecurity firm deployed an update that sparked a major global IT outage. This week, the 2Q results season will kick into high gear with reports from GOOGL, TXN, V, TSLA, IBM, KO, HON, DOW, 3M, while major economic data releases are advance 2Q GDP growth rate, PCE inflation, S&P global manufacturing and services PMI. Meanwhile, Wall St is likely to remain choppy after Biden said he will not seek re-election and endorsed Kamala Harris to become the Democratic nominee.

Malaysia. Bucking regional markets’ decline, KLCI rose 2.8 pts to 1,636.6 17.5 pts WoW) amid US rate-cut optimism and sustained foreign net inflows. Market breadth stayed sluggish at 0.60 vs 0.69 previously while daily volume reduced 19% at 4.43bn shares valued at RM3.27bn. For the 15th straight session, foreigners were the major net buyers (+RM93m, July: +RM1.61bn, YTD: +RM784m) alongside local retailers (+RM9m, July: -RM781m, YTD: -RM4.17bn) while local institutions (-RM102m, July: -RM831m, YTD: +RM3.38bn) emerged as major net sellers for the 7th consecutive day. 

Outlook Unless the 1,610-1,624 support levels are breached, KLCI may continue its upward trajectory towards 1,646-1,660 before profit-taking consolidation, ahead of the August reporting season. However, downside risks would be cushioned by (i) Fed’s rate-cut optimism, (ii) stable corporate earnings and economic growth, (iii) planned investments inflow, (iii) government reforms, (iv) exuberance in investment themes, and (v) renewed buying interests from foreign investors. 

Source: Hong Leong Investment Bank Research - 22 Jul 2024