Fed-pause Rally May Spur KLCI to Revisit 1,450-1,465 Zones

KLCI:    1439.8 (4.4)
DOW:    33839 (565)
FCPO (RM):    3784 (0.0)
BRENT (USD):    86.9 (2.22)
USDMYR:    4.751 (-0.021)
SGDMYR:    3.481 (0.0007)
EURMYR:    5.047 (0.0132)
AUDMYR:    3.060 (0.0374)
GBPMYR:    5.788 (    -0.0043
US: 10-yr yield (%)    4.66 (-0.08)
BNM:10-yr yield (%)    4.01 (-0.10)

Asia/US*. Taking cue from an overnight Wall St rally, MSCI All Countries Asia Pacific Index jumped 1.06% to 152.25 boosted bets for an end to Fed hikes (held rates unchanged for a 2nd month) as the surge in Treasury yields could instead help the central bank keep monetary conditions restrictive to wring out the inflationary excesses of this business cycle. In the run-up to the crucial jobs data tonight, the Dow continued its relief rally for the 4th straight day (+565 pts to 33,839), amid higher-than-expected weekly jobless claims and sliding Treasury yields (-8bps to 4.66%) after the Fed held rates unchanged for a 2nd month and delivered a less hawkish tone. Earnings wise, QCOM, SBUX and LLY prices jumped on upbeat results while AAPL slid on weak Dec quarter outlook. 

Malaysia. Mirroring a rebound in regional markets and expectations of a stable Malaysian GDP growth after BNM retained OPR at a supportive 3%, KLCI gained 4.4 pts to 1,439.8. Market breadth was bullish at 1.92 vs 0.57 previously, accompanied by a 7% rise in trading value to RM1.93bn. Foreigners emerged as major net buyers (+RM82m, Nov: -RM27m, YTD: -RM4.18bn) whilst local institutions (-RM40m, Nov: +RM43m, YTD: +RM4.94bn) and local retailers (-RM42m, Nov: -RM16m, YTD: -RM0.75bn) were the net sellers. 

Outlook. Tracking a relief rally on Wall St and KLCI’s resilience in consolidating above the 100D MA near 1,430, the index could advance further. However, we expect stiff hurdles at 1,465, ahead of the Nov results season and unfriendly macro backdrops, i.e. the Middle East turmoil, China’s uneven economic recovery, weak RM (vs USD) coupled with persistent foreign selling. 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 16.5x); (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 - 3 Nov 2023