External headwinds to dampen sentiment

KLCI:    1445.6 (2.1)
DOW:    33618 (-388)
FCPO (RM):    3699 (7)
BRENT (USD):    94.0 (0.67)
USDMYR:    4.690 (0.003)
SGDMYR:    3.430 (-0.0006)
EURMYR:    4.970 (-0.0142)
AUDMYR:    3.008 (-0.0035)
GBPMYR:    5.717 (-0.0144)
US: 10-yr yield (%)    4.54 (0.00)
BNM:10-yr yield (%)    3.98 (-0.01)

Asia/US. Asian markets ended mixed as investors continued to fret about Fed’s hawkish pause, surging Treasury yields and dollar index coupled with a looming US government shutdown. Sentiment was also dampened by heightened concerns over China’s property crisis and growing pessimism over an economic recovery in the country. The Dow plunged 388 pts to 33,619 amid lingering worries about a possible government shutdown and Fed’s protracted restrictive policy to rein sticky inflation. Sentiment was also dented by the slowdown in US consumer confidence (slipped to 4M low) and new home sales (fell to 5M low), which suggested that the US economy may finally be under strain. 

Malaysia. After hitting a 5-week low on 25 Sep, KLCI inched up 2.1pts to end at 1,445.6 yesterday. Despite the gains, market breadth deteriorated to 0.65 vs 0.71 a day ago. In terms of funs flows, foreign institutions were the major net buyers (+RM92m, Sep: +RM720m, YTD: -RM1.93bn) followed by local retailers (+RM15m, Sep: -RM212m, YTD: -RM0.74bn) whilst local institutions (-RM107m, Sep: -RM508m, YTD: +RM2.66bn) emerged as the single largest net sellers. 

Outlook Tracking an overnight slide from Wall St and China’s lingering economic malaise, KLCI may face further consolidation amid risk-off mode (resistance: 1,465-1,478, support: 1,420-1,440). However, we advocate buy on dips to ride on a better 4Q23 (YE target: 1,530), underpinned by: (i) improved risk appetite post-election and a pick-up in M&A trails; (ii) undemanding KLCI at 13x CY2024 P/E (vs 10Y average 16.7x), (iii) latest initiatives and masterplans (e.g. NETR, NIMP2030, 12MP-MTR, Forest City’s special financial zone) are expected to ensure long-term fiscal sustainability and competitiveness of the nation, (iv) a resumption of foreign net inflow in Sep MTD for a 3rd consecutive month, (v) potential 3Q23 window dressing activities following a 3% slide YTD and PM’s fruitful visit to US, as well as (vi) potential bottom up in China’s economy in 4Q23 after a slew of stimulus measures to kickstart a sluggish economy.

Source: Hong Leong Investment Bank Research - 27 Sept 2023