To revisit YTD high at 1,638 amid Fed’s rate-cut optimism and stronger RM

KLCI: 1625.57 (13.6)
DOW: 40842.79 (99.5)
MSCI Asia: 183.61 (3.9)
FCPO (RM): 3904 (-4)
BRENT (USD): 80.72 (2.09)
USDMYR: 4.5905 (-0.031)
SGDMYR: 3.4292 (-0.01)
EURMYR: 4.9697 (-0.036)
AUDMYR: 2.9827 (-0.043)
GBPMYR: 5.8908 (-0.054)
US: 10-yr yield (%) 4.0296 (-0.11)
BNM:10-yr yield (%) 3.728 (-0.059)

Asia/US. Ahead of the Fed (31 July) and BOE (1 Aug) policy meetings, Asian bourse ended mostly higher, bolstered by a 1.45% surge in the NIKKEI 225 following the Bank of Japan's decision to hike interest rates for the second time in 17 years, which notably boosted banking stocks. Dow jumped 99 pts to 40,842 and the Nasdaq rebounded 2.6% to 17,598 while US10Y bond yield tumbled 11 bps to 4.01% after Powell signalled the Fed could cut rates “as soon as” Sep.  After hours, META shares rallied 7.3% amid earnings beat and promising forecast while ARM plunged 12.8% on poor guidance.

Malaysia. Tracking higher regional markets and a strengthening RM, the KLCI rebounded 13.6 pts to 1,625.6 after hitting a three-week low. Despite the gain, market breadth remained negative at 0.80 despite improving from 0.43 the previous day. Trading volume rose 5.5% to 4.42bn shares valued at RM3.62bn (+16.4%). On fund flows, local institutions (-RM141m, July: -RM745m, YTD: +RM3.47bn) were the biggest sellers whilst local retailers (+RM20m, July: -RM574m, YTD: -RM3.96bn) and foreigners (+RM121m, July: RM1.32bn, YTD: +RM491m) emerged as major net buyers. 

Outlook Following a dovish Fed, a strengthening ringgit, and continued net inflows from foreign investors, the KLCI could advance further before a potential pause, ahead of a seasonally weak month of Aug results season (average KLCI growth for 10Y/20Y: -1.1%/-1.4%). Unless staging a decisive breakdown below the 1,600-1,606 support levels, KLCI may continue its upward trajectory towards 1,638-1,650-1,660 after a healthy consolidation, underpinned by (i) Fed’s rate-cut pivot, (ii) stable corporate earnings and economic growth in Malaysia, (iii) planned investments inflow, (iv) government reforms, and (iv) exuberance in investment themes.

Source: Hong Leong Investment Bank Research - 1 Aug 2024