Extended Consolidation Amid Heightened Middle East Tensions and Surging Bond Yields

KLCI:    1446.5 (2.4)
DOW:    33665 (-333)
FCPO (RM):    3796 (-14)
BRENT (USD):    91.5 (1.60)
USDMYR:    4.747 (0.0105)
SGDMYR:    3.467 (0.0092)
EURMYR:    5.017 (0.0187)
AUDMYR:    3.027 (0.0184)
GBPMYR:    5.790 (0.0281)
US: 10-yr yield (%)    4.91 (0.08)
BNM:10-yr yield (%)    4.07 (0.02)

Asia/US. Most Asian stocks ended lower as upbeat US economic data bolstered the higher-for-longer view on Fed rates interest rates while intensifying Middle East tensions coupled with lingering property crisis in China kept sentiment in check. The Dow tumbled 332 pts to 33,665 while the US10Y Treasury yield surged 8 bps to 4.91% and Brent oil prices rallied 1.6% to USD91.4 as investors weighed escalating tensions in Middle East coupled with a slew of robust economic data (i.e. housing starts, building permits, retail sales etc), which could strengthen expectations for higher-and-longer Fed rates. Meanwhile, earnings season gained steam, with about 75% beat expectations for the S&P 500 companies that have already reported so far. On the earnings front, UAL, P&G, and NFLX earnings topped estimates whilst MS and TSLA results missed expectations. 

Malaysia. Bucking lower regional markets, KLCI rose 2.4 pts at 1,446.5, lifted by PCHEM, PPB, CDB, SIMEPLT, NESTLE and TENAGA. Despite the headline gains, market breadth was bearish 0.43 vs 1.24 previously, as daily volume jumped 27% to 3.4bn shares valued at RM2.7bn amid a resumption of foreign selling. Foreign institutions intensified their selling spree for a 4th session (-RM125m, Oct: -RM1.53bn, YTD: -RM3.51bn) whilst local institutions (+RM96m, Oct: +RM1.59bn, YTD: +RM4.19bn) and local retailers (+RM29m, Oct: -RM54m, YTD: -RM0.68bn) emerged as the major net buyers. 

Outlook KLCI is likely to remain choppy in the near term, as sentiment is likely to be dampened by the escalating tensions in the Middle East, sliding RM (vs USD) coupled with surging bond yields. 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 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, and (iv) the traditional year-end window dressing effect (92% positive hit rate in Dec since the GFC).

VIRTUAL PORTFOLIO We Had Squared Off Our Position on MAHSING (loss: 4.1%) Yesterday

Source: Hong Leong Investment Bank Research - 19 Oct 2023