UOBKH Research expects the equity markets to price in a series of policy rate cuts by the US Federal Reserve.
KUALA LUMPUR: Despite overnight gains on the US stock markets fuelled by cooling inflation data, the FBM KLCI continued to stay muted and lagged its peers in the wider Asian region in yesterday’s trade.
The local bourse saw some profit taking early in the day but this had soon diminished as buyers quietly filled in any buying opportunities that presented itself in the second half of the day.
The FBM KLCI closed almost unchanged from the previous day at 1,612.940 with a gain of 0.59 points or 0.04% as investors await the second-quarter gross domestic product (GDP) numbers due to be announced today.
Regional benchmarks such as Singapore’s Straits Times Index (0.85% rise) and South Korea’s Kospi (0.88% rise) saw larger gains that tracked the US markets as the Dow Jones added 0.61% overnight.
“I would see this as sentiment having not yet fully recovered from the recent growth scare where the FBM KLCI fell some 77 points at the beginning of last week. Sentiment is, by and large, still jittery,” Rakuten Trade’s head of equity sales Vincent Lau told StarBiz.
That said, the FBM KLCI has since recovered most of those losses and is almost close to the original point prior to the selldown last week.
Technical analysts said there was an apparent buying on weakness on many blue-chip counters in the last three to five trading days, including yesterday.
“The index may be holding up but there were some stocks dropping as market breadth yesterday was still weaker. I believe the GDP would present good numbers from before and the recent industrial production index numbers show resilient economic momentum,” Lau said.
Moving forward, he expects the data centre pool of stocks to continue adding to their gains.
Meanwhile, UOB Kay Hian (UOBKH) Research expects the equity markets to price in a series of policy rate cuts by the US Federal Reserve, with the cycle to begin in September and run into 2025.
“As in the past dovish cycles, US policy rate cuts should be accompanied by a fall in the US dollar index and equity inflows into emerging markets, and the ringgit’s continuing appreciation against the falling US dollar index should induce a further rise in the FBM KLCI,” it said in a report yesterday.
The research house also remained positive on exporters even though they are perceived to be on the losing end of any strengthening of the ringgit.
“Financial losers of the ringgit appreciation are not necessarily market underperformers.
“While theoretically exporters are ‘financial losers’ during the ringgit’s appreciation, their stock performances are significantly more swayed by business cycles and pricing power,” UOBKH Research said.
“We remain generally overweight on the key exporting sectors in our coverage – building materials which capitalise on global supply chain disruptions, gloves and the technology sector that could undergo a cyclical recovery,” it added.
It noted of three potential clear winners in this new macro environment: the importers, companies with high US dollar debt and high dividend yielders.
“Overall, the key buy-rated strong ringgit beneficiaries are Duopharma Biotech Bhd
, Fraser & Neave Holdings Bhd and Genting Malaysia Bhd, while the high yielders are Bermaz Auto Bhd, Magnum Bhd and RGB International Bhd,” the research house said.
Commenting on the GDP growth, which will be announced by Bank Negara today at noon, MIDF Research was bullish on this front estimating second-quarter GDP growth to come in at 6.1% year-on-year (y-o-y).
It noted the consumer sector continues to be resilient based on retail trade indicators, and motor vehicle sales will in turn boost domestic demand.
“We noticed more encouraging domestic spending as shown by the robust growth in the services sector. Other factors that will push GDP growth above 6% y-o-y was the encouraging progress in construction works and stronger output in the manufacturing and mining sectors,” MIDF Research said.
