Near Term Consolidation Prevails With Major Support at 1,600-1,611 Levels

KLCI: 1615.18 (-6)
DOW: 39935.07 (81.2)
MSCI Asia: 179.08 (-3.4)
FCPO (RM): 3946 (28)
BRENT (USD): 82.37 (0.66)
USDMYR: 4.6613 (-0.011)
SGDMYR: 3.4725 (-0.001)
EURMYR: 5.0582 (-0.006)
AUDMYR: 3.0415 (-0.041)
GBPMYR: 6.0063 (-0.025)
US: 10-yr yield (%) 4.2407 (-0.043)
BNM:10-yr yield (%) 3.78 (-0.011)

Asia/US. Tracking Wall St’s rout, Asian markets slumped as investors continued to weigh the tech tailspins due to underwhelming mega tech earnings and elevated AI-related valuations. Additionally, expectations that the BOJ might raise interest rates on 31 July added to the negative sentiment, overshadowed the PBOC’s unexpected 20 bp cut in its MLF to 2.3%. Dow gained 81 pts while S&P 500 (-0.5% to 5.399) and Nasdaq (-0.9% to 17,180) fell amid the persistent rotation from the high-priced tech stocks to more value-oriented and economically sensitive sectors. Investors are adjusting their expectations following a strong US 2Q GDP data, ongoing earnings reports, and rate-cut optimism. All eyes are now on the release of PCE price data tonight to confirm bets of an early start to Fed rate cuts. On earnings front, DOW (-0.88%) and F (-18.3%) dropped on weak results whilst HON (-5.2%) plunged as guidance below expectations. 

Malaysia. Mirroring the slide in regional markets, KLCI fell 6 pts to 1,615.2, dragged by selloff on TENAGA, YTLPOWR, AXIATA, KLK, SIME and GENTING. Market breadth was bearish at 0.27 vs 0.44 previously with 4.55bn shares transacted valued at RM3.11bn. On fund flows, local institutions (+RM267m, July: -RM591m, YTD: +RM3.62bn) and local retailers (+RM103m, July: -RM618m, YTD: -RM4.0bn) were the major net buyers whilst foreigners (-RM370m, July: RM1.21bn, YTD: +RM381m) emerged as 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 1,600-1,611 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, and (iv) exuberance in investment themes. 

Source: Hong Leong Investment Bank Research - 26 Jul 2024