Uncertainty Prevails Amid External Headwinds and the Upcoming Budget 2024 Speech

KLCI:    1417.3 (0.4)
DOW:    33605 (197)
FCPO (RM):    3591 (-14)
BRENT (USD):    88.2 (3.57)
USDMYR:    4.732 (0.018)
SGDMYR:    3.456 (0.0075)
EURMYR:    4.984 (0.01)
AUDMYR:    3.010 (0.0119)
GBPMYR:    5.767 (0.0139)
US: 10-yr yield (%)    4.80 (0.0)
BNM:10-yr yield (%)    4.07 (-0.04)

Asia/US. Asian markets ended lower due to concerns about rising oil prices and a resurgence of inflation following the Israel-Palestine conflict. Sentiment was also dampened by a robust US Sep jobs report, reinforcing expectations that the Fed will prolong its hawkish stance. Dow fell as much as 154 pts amid rising geopolitical tensions in Middle East following the Israel-Hamas conflict and a revival of inflation risks on the back of surging oil prices. However, the index ended higher for a 2nd day (+197 pts to 33,605), bolstered by the “proceed carefully” remarks by Fed officials and lowered bets on another Fed hike this year.

Malaysia. KLCI ended +0.4-pt at 1,417.3 in a listless trade. Market breadth turned negative at 0.69 vs 1.10 last Friday. Foreign institutions’ net selling trades continued for the 5th straight day (-RM108m, Oct: -RM1.27bn, YTD: -RM3.24bn) followed by the local retailers (-RM13m, Oct: +RM102m, YTD: -RM0.52bn) while the local institutions (+RM121m, Oct: +RM1.17bn, YTD: +RM3.77bn) emerged as major net buyers for the 5th consecutive session. 

Outlook We expect a spike in volatility ahead for the KLCI (resistance: 1,438-1,451; support: 1,390-1,400), driven by: (i) the direction of Fed policy, (ii) China’s recovery pace, (iii) USD strength as the Israel-Palestine conflict spurs flight to safety, (iv) escalating inflation concern as "war risk premium" boost oil prices, and (v) fears of unpopular new taxes and tightening budgets in the Budget 2024 speech (13 Oct). Nevertheless, we reiterate our buy on dips stance to ride on a better 4Q23 (YE target: 1,530), underpinned by: (i) improved risk appetite post-election and clearer political runway allowing the Unity Government to roll out its strategic plans and reforms; (ii) undemanding KLCI at 12.8x CY2024 P/E (vs 10Y average 16.2x), (iii) the traditional year-end window dressing effect (92% positive hit rate in Dec since the GFC). 

Source: Hong Leong Investment Bank Research - 10 Oct 2023