Extended consolidation ahead of the Aug results season and Wall St’s rout

KLCI: 1621.14 (-8.5)
DOW: 39853.87 (-504.2)
MSCI Asia: 182.51 (-0.2)
FCPO (RM): 3923 (-2)
BRENT (USD): 81.71 (0.7)
USDMYR: 4.672 (-0.001)
SGDMYR: 3.4739 (0)
EURMYR: 5.0647 (-0.014)
AUDMYR: 3.0824 (-0.014)
GBPMYR: 6.0313 (-0.003)
US: 10-yr yield (%) 4.2838 (0.033)
BNM:10-yr yield (%) 3.791 (-0.017)

Asia/US. Asian markets slid as investors reacted to disappointing earnings reports from mega caps TSLA and GOOGL, heightened volatility due to the US presidential race, and discouraging economic data from China. Additionally, sentiment was dampened by an underwhelming interest rate cut and the absence of major stimulus measures following the 3rd Plenum. Dow (-1.2% to 39,126), S&P 500 (-2.3% to 5.427) and Nasdaq (-3.6% to 17,355) plunged following uninspiring earnings from mega cap heavyweights GOOGL, TSLA and V coupled with mixed economic prints from US new home sales, manufacturing & services PMIs. After the bell, IBM jumped 2.8% as earnings beat estimates while TXN gained 0.9% as earnings and outlook met expectations. 

Malaysia. In sync with the sluggish regional markets, KLCI fell 8.6 pts to 1,621.1, dragged by selloff on PMETAL, PCHEM, YTL, YTLPOWR, IHH and IOICORP. Market breadth reversed to 0.44 vs 1.5 last Friday while daily volume reduced 14% to 4.39bn shares valued at RM2.8bn (-22%). On fund flows, local retailers (+RM58m, July: -RM721m, YTD: -RM4.10bn) emerged as the major net buyers whilst foreigners (-RM37m, July: +RM1.58bn, YTD: +RM751m) and local institutions (-RM21m, July: -RM858m, YTD: +RM3.35bn) were the major net sellers. 

Outlook In the short term, KLCI may continue its consolidation as investors await more clarity on the Fed’s rate-cut trajectory, US corporate earnings outlook and upcoming Bursa’s Aug results season. Unless the 1,606-1,615 support levels are breached, KLCI may continue its upward trajectory towards 1,646-1,660 after a healthy profit-taking consolidation, underpinned 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 (July: +RM1.58bn, YTD: +RM751m). 
 

Source: Hong Leong Investment Bank Research - 25 Jul 2024