Volatility Persists as Markets Weigh Rising Middle East Tensions and Surging Bond Yields - KLCI: 1444.1 (5)

KLCI: 1444.1 (5)
DOW: 33997.7 (13)
MSCI Asia 156.6 (1)
FCPO (RM): 3792 (8)
BRENT (USD): 89.9 (0.25)
USDMYR: 4.736 (0)
SGDMYR: 3.458 (-0.0012)
EURMYR: 4.998 (0.01)
AUDMYR: 3.009 (0.0129)
GBPMYR: 5.762 (0.0066)
US: 10-yr yield (%) 4.83 (0.13)
BNM:10-yr yield (%) 4.05 (0.00)

Asia/US.  Ahead of the China’s 3Q23 GDP print today, Asian markets ended higher, driven by Wall St rally amid diplomatic efforts to prevent the Israel-Hamas crisis from expanding into the Middle East, as well as positive expectations from a deluge of US 3Q23 earnings. The Dow ended +13 pts to 33,997 after fluctuating 293 pts during intraday session while the US10Y Treasury yield surged 13 bps to 4.83% following upbeat economic data (i.e. retail sales, manufacturing output and industrial output reports) and earnings optimism (i.e. BAC and J&J), overshadowed the Middle East uncertainty.

Malaysia. In line with higher regional markets and Wall St rally overnight, KLCI rose 5.1 pts at 1,444.1, led by PPB, KLK, AXIATA, SIMEPLT, MAYBANK and PBBANK. Market breadth returned to positive at 1.24 vs 0.48 previously, with daily volume shrank 13.3% to 2.7bn shares valued at RM1.9bn. Foreign institutions turned net sellers for a 3rd session (-RM46m, Oct: -RM1.41bn, YTD: -RM3.38bn) followed by local retailers (-RM40m, Oct: -RM83m, YTD: -RM0.71bn) whilst local institutions (+RM86m, Oct: +RM1.49bn, YTD: +RM4.09bn) emerged as the major net buyers.

Outlook KLCI is likely to remain choppy in the near term, as investors digest the Budget 2024 measures and awaiting more clarity from the Israel-Hamas war. While an agreement between the US and Israel to allow aid into Gaza provided some relief, markets remained on the edge over a potential spillover of the conflict into the Middle East region. 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 13.2x CY2024 P/E (vs 10Y average 16.6x), (iii) potential tail-end of Fed’s tightening, and (iv) the traditional year-end window dressing effect (92% positive hit rate in Dec since the GFC).

Source: Hong Leong Investment Bank Research - 18 Oct 2023