Downtrend Resumes Amid External Headwinds, US AI Chips Sanctions and Continued Foreign Exodus

KLCI: 1585.59 (-16.8)
DOW: 42297.12 (358.7)
MSCI Asia: 175.71 (-2.2)
FCPO (RM): 4486 (-14)
BRENT (USD): 81.01 (1.25)
USDMYR: 4.51 (0.013)
SGDMYR: 3.2808 (-0.006)
EURMYR: 4.5973 (-0.035)
AUDMYR: 2.7686 (-0.012)
GBPMYR: 5.4607 (-0.072)
US: 10-yr yield (%) 4.7779 (0.019)
BNM:10-yr yield (%) 3.806 (0.019)

Asia/US Tracking Wall St’s rout last Friday, Asian markets slid as investors tempered Fed’s rate-cut expectations following US robust Dec jobs data. Despite China’s upbeat Dec trade data, sentiment remained cautious amid lingering concerns over China’s sluggish economy and persistent deflationary pressures, and the absence of an aggressive policy support.

The Dow rebounded 356 pts to 42,294 after last Friday’s 697-pt rout while the Nasdaq lost 74 pts to 19,808 as investors rotated into non-tech sectors after US10Y bond yield rallied to 15M high (+3 bps to 4.79%). This week, focus turned to the start of 4Q24 earnings season (projected to grow 11% YoY), particularly from JPM, WFC, C, GS, BAC, UNH and MS, to gauge whether valuations are outpacing fundamentals. On the data front, investors will scrutinise the PPI and inflation, retail sales, and housing starts, which will be pivotal in shaping upcoming FOMC decision on Jan 30 after stronger-than-expected jobs report last Friday.

Malaysia. In line with regional markets’ slide and ongoing concerns on local DC projects amid potential US AI-chip export curbs, KLCI plunged as much as 23.4 pts before paring the losses to 16.8 pts at 1,585.6. Market breadth was bearish at 0.24 vs 0.84 last Friday. Foreign institutions intensified their net outflows for the 8th day (-RM325m, Jan: -RM928m, Dec: -RM2.88bn) while local retailers (+RM100m, Jan: +RM278m, Dec: -RM797m) alongside local institutions (+RM225m, Jan: +RM650m, Dec: +RM3.68bn) emerged as major net buyers.

Technical view After hitting a 3W high of 1,644.5 (Dec 31), KLCI extended its profit taking pullback to a low of 1,579 before closing at 1,585.6 yesterday. With the benchmark slipping back into the downtrend channel, deeper consolidation may be underway, with key supports at 1,571 (weekly lower BB) and 1,550 (lower downtrend channel). In contrast, key barriers are pegged at 1,600, 1,611 (200D MA), 1,623 (38.2% FR) and 1,635 (50% FR) levels. 

Outlook Mirroring the choppy Wall St and KLCI’s weakening technical readings after slipping back into downtrend channel, deeper consolidation may follow (support: 1,550-1,571); resistance: 1,600-1,611-1,623) as investors weigh: (i) the implications of Trump 2.0 policies (post Jan 20 inauguration); (ii) China’s economic challenges; (iii) persistent foreign outflows; (iii) US 4Q24 earnings season, as well as (iv) upcoming major central banks’ policy decisions, notably from the BOJ (Jan 25), ECB and FOMC (Jan 30). 

Virtual portfolio In view of the external headwinds and weakening technical readings, we had squared off our virtual portfolio positions on MRDIY (3.7% loss) and NOTION (9.2% loss).     

Source: Hong Leong Investment Bank Research - 14 Jan 2025