Crucial 100D MA support near 1,429 to prevent further selloff

KLCI:    1435.3 (-6.8)
DOW:    33275 (222)
FCPO (RM):    3706 (18)
BRENT (USD):    84.6 (-2.78)
USDMYR:    4.772 (0.008)
SGDMYR:    3.481 (-0.0092)
EURMYR:    5.034 (-0.0485)
AUDMYR:    3.023 (-0.0111)
GBPMYR:    5.793 (-0.0144)
US: 10-yr yield (%)    4.73 (-0.20)
BNM:10-yr yield (%)    4.11 (0.02)

Asia/US*. Despite the cautious mood before the FOMC decision and China’s poor Oct PMI (manufacturing and services) reports, Asian bourses mostly advanced, led by a 2.4% rally in Nikkei 225 (with export-oriented blue chips in focus amid sliding Yen) after BOJ allowed more flexibility in its YCC policy. The Dow rose for the 3rd straight day (+221 pts to 33,274) after the Fed held rates unchanged for a 2nd month with a less hawkish tone while ISM manufacturing, private jobs and construction jobs data revealed signs of cooling in the economy and labour market. Powell said the surge in long-term yields reduces the impetus to raise rates but reiterated the door remains open to another hike to tame inflation.

Malaysia. Ahead of the FOMC and MPC decisions coupled with a sluggish Oct’s Malaysia’s PMI of 46.8 (14th consecutive month of contraction and stayed at 9M low), KLCI slipped 6.8 pts to 1,435.3. Market breadth weakened to 0.57 from 1.03 last Friday, accompanied by a 3% decline in trading value to RM1.8bn. Foreigners continued their net selling in Nov after net selling RM2.19bn in Oct (-RM109m, Oct: -RM2.19bn, YTD: -RM4.27bn) whilst local institutions (+RM83m, Oct: +RM2.3bn, YTD: +RM4.98bn) and local retailers (+RM26m, Oct: -RM113m, YTD: -RM0.71bn) emerged as the major net buyers.

Outlook Tracking recent rebound on Wall St amid a less hawkish Fed’s narrative, KLCI is likely to consolidate along the 100D MA support near 1,429, ahead of the MPC decision today, as well as the upcoming Nov results season. In the short term, cautious sentiment should prevail amid unfriendly macro backdrops, i.e. the Middle East turmoil, China’s uneven economic recovery, sliding RM (vs USD), persistent foreign selling coupled with elevated bond yields. 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 - 2 Nov 2023