KUALA LUMPUR (July 1): Malaysian shares may track overnight US equity gains as the ringgit takes the cue from expectation that the US may delay interest rate hikes.

Sentiment on US interest rates comes at a time when the UK's European Union (EU) exit (Brexit) decision has led to financial market volatility.

Yesterday, the FBM KLCI rose 11.87 points or 0.7% to close at 1,654.08 points. The ringgit strengthened to 4.0288 against the US dollar.

In overnight US share trades, the Dow Jones Industrial Average and Nasdaq Composite each climbed 1.33% while S&P 500 added 1.36%.

Reuters reported that Wall Street rolled to a third straight day of gains on Thursday as Britain's central bank raised the prospect of stimulus and consumer staples shares gained on news of Mondelez International's $23 billion bid for Hershey.

In Malaysia, MIDF Amanah Investment Bank Bhd wrote in a note that Brexit sentiment could have prompted investors to shift their funds back into emerging market bonds amid lower expectation of US interest rate hikes this year.

Such sentiment could have resulted in demand for emerging market currencies like the ringgit.

"Recall that last year, ringgit has been depreciating against USD as investors were expecting the Fed (Federal Reserve) to begin tightening their monetary policy. Although the pace of rate hike has been slower than what was initially expected, the expectation that the US Federal Reserve would tighten their interest rate gradually remains.

"However, since the EU referendum decided on a Brexit, traders are no longer expecting the Fed to increase their interest rate this year," MIDF said.