Higher for longer rally amid strong economic and earnings growth, robust foreign inflows, and Ringgit’s strength

Technical pick – FOCUSP 

KLCI: 1648.7 (24.8)
DOW: 40896.53 (236.8)
MSCI Asia: 183.82 (0.9)
FCPO (RM): 3726 (5)
BRENT (USD): 77.8 (-1.88)
USDMYR: 4.3828 (-0.05)
SGDMYR: 3.3443 (-0.016)
EURMYR: 4.8364 (-0.035)
AUDMYR: 2.9305 (-0.011)
GBPMYR: 5.6816 (-0.039)
US: 10-yr yield (%) 3.8711 (-0.011)
BNM:10-yr yield (%) 3.758 (-0.001)

Asia/US. Despite Wall St’s rally, most Asian markets ended mixed as investors await key economic data (e.g. Japan’s machinery orders & inflation data, China’s loan prime rate, US manufacturing and services PMIs) and FOMC minutes and Fed official speeches. Dow rose for 5th consecutive day (+236 pts to 40,896) as recession risks decrease and Sep’s rate-cut expectations strengthen. This week, investors will parse on S&P Global PMIs, Powell’s Jackson Hole speech, and July FOMC minutes for further economic and policy insights. 

Malaysia. In wake of the strong 2024 GDP forecasts at 5% YoY (following an upbeat 2Q24 GDP posting), positive expectations of 2Q24 results season, coupled with the robust foreign net buying, KLCI rallied 24.8 pts to 1,648.7. However, market breadth narrowed to 1.11 vs 2.48 previously while daily volume reached 3.90bn (+21%) shares valued at RM4.30bn (+56%), driven by banking stocks. Foreign institutions were notable net buyers for the 5th straight session (+RM575m, Aug: +RM220m, Aug: +RM711m). In contrast, local institutions (-RM378m, Aug: +RM294m, YTD: +RM3.76bn) and local retailers (-RM197m, Aug: -RM514m, YTD: -RM4.47bn) emerged as major net sellers. 

Outlook Encouraging economic and earnings outlook, a sustained RM appreciation and increased risk appetite by foreigners, coupled with bullish technical readings should extend KLCI’s rebound from its recent low of 1,529 (6 Aug). However, the benchmark may experience some volatility (+194 pts/13.3%) as earnings season accelerates, particularly from the blue-chips (resistance: 1,664-1,680-1,700; support: 1,613-1,625-1,638). 

Technically, FOCUSP is poised for further upside (Fig#3) as a successful refill of the RM0.77-0.79 gap coupled with a strong close above multiple key MAs could propel share prices higher towards 0.83-0.88-0.92 range. Meanwhile, downside supports are pegged at 0.70-0.74-0.76 levels.

Source: Hong Leong Investment Bank Research - 20 Aug 2024