Sideways consolidation as investors assess Budget details and Middle East tensions

KLCI:    1439.0 (-5.2)
DOW:    33984 (314)
FCPO (RM):    3781 (1)
BRENT (USD):    89.7 (-1.24)
USDMYR:    4.736 (0.0077)
SGDMYR:    3.459 (0.0051)
EURMYR:    4.988 (0.0096)
AUDMYR:    2.996 (0.0114)
GBPMYR:    5.755 (-0.0095)
US: 10-yr yield (%)    4.71 (0.09)
BNM:10-yr yield (%)    4.04 (-0.03)

Asia/US. . Asian markets stumbled over a potential spillover in the Israel-Hamas conflict into the broader Middle East region as Israel prepared for a ground assault on the Gaza strip. Meantime, investors remained on the edge over elevated US inflation, surging oil prices and ahead of the China’s 3Q23 GDP print (18 Oct). The Dow surged 314 pts to 33,984 whilst safe havens assets (eg gold, bonds and DXY) and oil prices dropped amid diplomatic efforts to prevent the Israel-Hamas war from expanding into a Middle East war. Sentiment was also helped by positive expectations of a deluge of 3Q23 earnings reports (eg, MS, Tesla, BAC, J&J, P&G and Netflix), with the S&P 500 earnings is expected to grow by 0.4% YoY (the first growth since 3Q22).

Malaysia. In line with sluggish regional markets and post-budget blues amid a muted Budget, KLCI fell 5.1 pts at 1,439 after rallying 27.3 pts WoW. Market breadth tumbled to 0.48 vs 0.77 last Friday, with daily volume lost 5% to 3.1bn shares valued at RM1.9bn. Foreign institutions turned net sellers for a 2nd day (-RM209m, Oct: -RM1.36bn, YTD: -RM3.34bn) followed by local retailers (-RM13m, Oct: -RM43m, YTD: -RM0.67bn) whilst local institutions (+RM222m, Oct: +RM1.40bn, YTD: +RM4bn) emerged as major net buyers.

Outlook KLCI is likely to remain choppy in the near term amid profit taking pressures after rallying 27 pts last week, as investors digest the Budget 2024 measures and pending more clarity from the Middle East conflict. 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 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 - 17 Oct 2023