Consolidation With a Base at 1,426-1,436 Zones Amid External Headwinds and Foreign Selling

KLCI:    1442.5 (6.9)
DOW:    33036 (-105)
FCPO (RM):    3697 (18)
BRENT (USD):    90.1 (2.06)
USDMYR:    4.781 (-0.004)
SGDMYR:    3.489 (-0.0133)
EURMYR:    5.053 (-0.0365)
AUDMYR:    3.027 (-0.0181)
GBPMYR:    5.793 (-0.0646)
US: 10-yr yield (%)    4.95 (0.13)
BNM:10-yr yield (%)    4.13 (0.01)

Asia/US*. MSCI All Countries Asia Pacific index rose for a 2nd day (+0.18% to 152.2), boosted by a retreat in UST10Y yield from 16Y highs, as well as bold stimulus measures by the China’s government to rejuvenate the stalling economy. Dow resumed its selling spree (-105 pts at 33,036) while the US10Y yield surged 13 bps to 4.95% as investors grappled with a set of mixed 3Q23 results (i.e. GOOGL, META, TEXAS, BOEING and IBM) and strong economic data (i.e. US Composite PMI, new home sales) that provided further evidence of the resilience of the US economy. Meanwhile, Brent prices soared 2% to USD90 as traders weighed potential supply disruptions amid fears of escalation between Israel-Gaza conflict and hopes that China government’s upcoming stimulus measures would lift fuel demand. 

Malaysia. In line with higher regional markets and Wall St rebound, KLCI jumped 6.9 pts at 1,442.5, halting a 5-day losing streak. Market breadth was positive for a 2nd day at 1.25 vs 1.47 a day ago, on a 3.7% decline in turnover of 2.83bn shares worth RM1.78bn. Local institutions (+RM178m, Oct: +RM2.11bn, YTD: +RM4.71bn) emerged as the major net buyers for a 9th consecutive days while foreign institutions (-RM150m, Oct: -RM1.97bn, YTD: -RM3.95bn) and local retailers (-RM28m, Oct: -RM140m, YTD: -RM0.77bn) were the biggest net sellers. 

Outlook Ahead of the Nov results season, KLCI is envisaged to consolidate further, spooked by current unfriendly macro backdrops, i.e. the Middle East turmoil, China’s uneven economy, sliding RM (vs USD), a resumption of foreign selling in Oct totalling RM1.97bn (exceeded 3Q23 net inflow of RM1.9bn) 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 13x 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 - 26 Oct 2023