Profit Taking Pullback as Investors Weigh Budget Details and Middle East Tensions

KLCI:        1444.1    (0.3)
DOW:        33670 (39)
FCPO (RM):    3737 (99)
BRENT (USD):    90.9 (4.89)
USDMYR:    4.728 (0.0168)
SGDMYR:    3.454 (-0.0038)
EURMYR:    4.979 (-0.0241)
AUDMYR:    2.985 (-0.0358)
GBPMYR:    5.765 (-0.0307)
US: 10-yr yield (%)    4.61 (-0.08)
BNM:10-yr yield (%)    4.07 (0.04)

Asia/US*. Asian markets slid as treasury yields surged after US inflation data bolstered bets on Fed rate hikes. Also, the persistent weakness in China’s CPI and PPI prints, as well as Iran’s stark warning of a multi-front war if the offensive on Gaza intensified, reignited gloomy sentiment. The Dow rose 39 pts at 33,670 (+0.8% WoW), driven by upbeat mega banks results (i.e. WFC and JPM), UNH and a rally in O&G stocks (+WTI: +5.7%), overshadowed lingering risk over inflation outlook and heightened conflicts in Israel. This week, key focus will be on the onset of the earnings season (i.e. Tesla, BAC, J&J, P&G and Netflix), Fed officials’ speeches and economic prints (i.e. retail sales, housing starts and industrial production).

Malaysia. KLCI ended 0.3-pt up (+27.3 pts WoW) after moving within a tight range (1,440.5-1,445) as investors braced for the tabling of Budget 2024. Market breadth turned negative at 0.77 vs 1.72 a day ago, with ADTV sliding 11.3% to RM1.8bn. Foreign institutions turned net sellers (-RM18m, Oct: -RM1.16bn, YTD: -RM3.13bn) followed by local retailers (-RM8m, Oct: -RM30m, YTD:-RM0.66bn) whilst local institutions (+RM26m, Oct: +RM1.18bn, YTD:+RM3.78bn) emerged as major net buyers. 

Outlook In line with rising geopolitical tensions in Israel and possible post-budget blues amid a muted Budget, KLCI is likely to engage in sideways consolidation (supports: 1,390-1,410, resistances: 1,451-1,465) after rallying 27 pts WoW. We reiterate our buy on dips stance to ride on a better 4Q23 (YE target: 1,530), underpinned by: (i) improved risk appetite post state polls and clearer political runway allowing the Unity Government to roll out its strategic plans and reforms; (ii) undemanding KLCI at 13.1x CY2024 P/E (vs 10Y average 16.6x), (iii) potential tail-end of Fed’s tightening (more clarity from the remaining Nov & Dec FOMC meetings),and (iv) the traditional year-end window dressing effect (92% positive hit rate in Dec since the GFC).

Source: Hong Leong Investment Bank Research - 16 Oct 2023