• The KLCI lost 46.4 pts to 1,730.74 pts versus the previous week, taking cue from global market rout on fear of rising rates, and worsened by concerns on the construction sector and possible new taxes mulled by the government.

• Foreign selling spiked during the week, registering a net outflow of RM1bn. Providing support were local institutional and retail net buying of RM603.1m and RM448.3m respectively.

• Net foreign outflow YTD is at RM9.8bn versus net inflow of RM9.9bn during the previous corresponding period.

• We anticipate equities to remain volatile with likely focus on Budget 2019 and US markets.

A gloomy week for equities

The local market slumped for 4 straight days on a combination of negative domestic and external factors. With the national budget drawing nearer, concerns on new taxes to be introduced, coupled with MRT2 underground contract termination, had a negative impact on the market. On the external front, the US market led another global rout, triggered by worries of higher than-expected interest rates. In addition, the IMF introduced a new and lower forecast for the global economy of 3.7% for 2019 (previously 3.9%), and warned of a risk of another financial meltdown.

Meanwhile the ringgit was traded higher at RM4.153 against the USD on the back of a higher Brent crude oil of US$80.88/ barrel. Overall, foreign net selling continued in week 41 at RM1bn, versus net inflows during week 37-39. Interestingly, retail buying made up 25% of buying last week.

Week 42 ahead – expect bottom fishing and also volatility

On the local front, we expect the market to focus on Budget 2019 to be tabled early November. The decision on MRT2 is also expected soon and may help bolster sentiment. Friday’s market action saw significant rebound in several key KLCI stocks, which could see momentum continuing in early part of this week. The US Fed chairman’s remark that rates are “a long way from neutral” signals a shift from being data-dependent to a clear aim to normalize rates, i.e. higher bond yield.

Source: BIMB Securities Research - 15 Oct 2018