• The KLCI weakened for another week closing at 1,679.86, down by 16 points ahead of high the G20 summit meeting.

• Net foreign outflow halved to RM719m in month of November, versus RM1.4bn in October. Local retail was net buyers worth RM850.2m.

• The market was impacted by the Fox theme park cancellation, which saw RM277m outlfow on Tuesday, and weakness in 3Q corporate earnings.

• KLCI earnings growth slows to 5.2% for 2019, while the temporary US-China truce and OPEC meeting this week will set tone for market for December.

Week 48 – Another week of selling

Local equities were again at the end of the selling side, with the KLCI slipping below 1,700. Domestic issues were disappointing earnings and cancellation of Fox theme park which had a negative impact on Tuesday. Tenaga posted a disappointing results for 9M18, although it met our revised forecast, coming in below expectations due to higher fuel cost. As a result net foreign selling was RM245m for the weekm while local institution sold RM321m.

Brent crude oil fell yet again this week by 1.29% to US$59.7/bbl on the back of oversupply concerns. Interestingly, the Federal Reserve Chairman said last Wednesday he considered the benchmark US interest rate to be near a neutral level, an important distinction from remarks he made less than two months ago.

Week 49 – Cease-fire hope and slower rate hikes

Corporate earnings for KLCI companies for 2019 is now forecast at 5.2% yoy, compared to 8% expected in October this year. On a bigger picture, despite rhetoric on US-China trade war continuing ahead of the G20 Summit, President Xi and President Trump reached a trade cease-fire during a meeting Saturday, on the sidelines of the summit. Both countries said they would launch negotiations to ease trade tensions, with the US postponing plans to increase tariffs on USD200 billion in Chinese goods which was scheduled to take effect 1 Jan 2019.

A couple of factors may further impact the markets this week, i.e the scheduled increase in US rates may slow, and OPEC meeting could see oil prices rebound.

Corporate earnings 3Q18 – slowdown in growth more apparent

The corporate earnings season for 3Q18 came to a conclusion on Friday with growth expectations slashed further for 2019. Our preliminary assessment for KLCI aggregate earnings for 2018 and 2019 post-3Q18 results are at +1.2% and +5.2% yoy respectively. This is marked decrease from expectation for +8.2% growth in August 2018. Please refer chart 1 below.

As mentioned written previously, the largest downgrade was seen in plantation, namely Sime Darby Plantation, KLK and IOI, all coming in below analysts’ estimates. Tenaga’s results last week also came in weaker than consensus expectation, although overall earnings were within BIMB’s forecast. Notable weak results came from Press Metal and IHH, while an outlier was Petchem which recorded above estimate earnings. All in 7 of the 30 companies in the KLCI recorded below our/consensus expectations.

Source: BIMB Securities Research - 3 Dec 2018