Asian markets made a mixed 2H debut as investors pared exposure to AI and semiconductor heavyweights following their outsized gains, amid portfolio rebalancing, profit-taking and concentration risk management. Nevertheless, sentiment remained
cautiously constructive, supported by lower oil prices near pre-crisis of USD72/bbl as concerns over disruptions to the Strait of Hormuz eased and stronger manufacturing data from China and Japan, although optimism was tempered after Iran ruled out direct talks with the U.S., with indirect negotiations continuing through Qatar.
Ahead of tonight’s key NFP report, Wall Street edged lower (Dow -0.02%; S&P 500 – 0.21%; Nasdaq -0.66%) as investors locked in profits following the blockbuster AI-driven rally in 1H. However, resilient economic data helped underpin sentiment, with US manufacturing expanding for a sixth consecutive month and input cost pressures easing sharply, while Warsh’s comments that inflation risks have moderated further reassured investors, despite offering no clues on the interest-rate outlook.
On the domestic front, persistent foreign selling and investor de-risking ahead of the key state elections in Johor (11 Jul) and Negeri Sembilan (1 Aug) weighed on sentiment, with the KLCI ending 0.43% lower at 1,656.8, dragged by MAYBANK, PBBANK, IHH, PMETAL, TENAGA and AXIATA. Market breadth remained positive at 1.17 (vs. 1.35 previously), while trading activity stayed subdued at 2.52bn shares (5-day rolling:2.99bn) worth RM2.27bn (5-day: RM2.57bn), reflecting the lack of fresh catalysts. Foreign investors remained net sellers at RM130m (5-day: -RM528m; June: – RM2.40bn), alongside local retailers (-RM93m; 5-day: -RM79m; June: RM446m). In contrast, local institutions continued to provide support, extending their net buying streak to a 7th consecutive session (RM223m; 5-day: RM607m; June: RM1.95bn).
After closing at a 7-month low of 1,656.8 on 1 July, KLCI’s technical outlook has turned bearish, confirming a double-top reversal after breaking below its rising trendline (near 1,730) and the key MA200 (1,676), with weakening momentum indicators reinforcing the downside bias. Unless the index decisively reclaims 1,676, 1,685 (MA20) and 1,706 (MA50), downside risks remain toward 1,650, 1,638 (MA280) and 1,625 (38.2% FR). A sustained break above 1,706 is needed to restore the medium-term uptrend toward 1,733.
After a cautious debut in July, HLIB sees the KLCI remaining choppy and headline-driven, with sentiment dictated by developments in US-Iran diplomacy and hawkish Fed expectations weighing on the ringgit and trade flows. Domestically, persistent foreign selling, a rising political risk premium amid the possibility of an early GE16, and the proposed expansion of the FBM KLCI from 30 to 50 constituents to broaden market representation and enhance sector diversification (with HLIB expecting the largest weight reductions in banking and utilities) are likely to keep the benchmark in an extended consolidation phase.
