KLCI eyes 1,476-1,492 range amid peaking Fed rate, the return of foreign buying, RM reprieve (vs USD), and bullish indicators

KLCI:    1464.7 (14.7)
DOW:    3409 (35)
FCPO (RM):    3776 (23)
BRENT (USD):    85.2 (0.29)
USDMYR:    4.637 (-0.0922)
SGDMYR:    3.441 (-0.0313)
EURMYR:    4.983 (-0.0526)
AUDMYR:    3.021 (-0.0241)
GBPMYR:    5.757 (-0.0172)
US: 10-yr yield (%)    4.64 (0.07)
BNM:10-yr yield (%)    3.88 (-0.08)

Asia/US. Ahead of the China’s key trade (7 Nov) and inflation (9 Nov) readings, Asian bourses ended mostly higher while bond yields continued to decline, taking cues from a soft US jobs report that helped reinforcing bets the Fed is done with its rate hike cycle, while focus also turned to upcoming economic readings from China. After surging 5.1% WoW, the Dow struggled to gain much traction (+35 pts to 34,096) as UST10Y yield rebounded 7 bps to 4.64% ahead of remarks from Powell (8 & 10 Nov) and new bonds’ issuance. Overall, traders were pricing in a greater chance of no more rate hikes by the Fed, and the central bank may begin to trim rates by mid-2024. Earnings wise, over 80% of S&P 500 Index companies had reported better than expected YoY earnings (+3.7% vs -0.3% on 30 Sep) but 4Q23 guidance has so far underwhelmed (+3.9% vs 8.1% on 30 Sep).’

Malaysia. Buoyed by the rally on Wall St and regional markets, a resumption of foreign buying and a reprieve in RM vs the USD (-1.95% to 4.637), KLCI surged 14.7 pts to 1,464.7 for its 3rd consecutive gain. Market breadth was buoyant at 2.34 vs 2.01 last Friday, supported by a 36% jump in trading value at RM2.74bn. After net selling RM2.19bn in Oct, foreigners emerged as major net buyers for a 3rd consecutive session (+RM359m, Nov: +RM544m, YTD: -RM3.61bn) whilst local institutions (-RM227m, Nov: -RM323m, YTD: +RM4.57bn) and local retailers (-RM132m, Nov: -RM221m, YTD: -RM0.96bn) were the net sellers. 

Outlook. Expectations of peaking Fed rates, the RM reprieve vs USD (-3.2% from 25Y low at RM4.63) the return of foreign strong buying (Nov: +RM544m, Oct: -RM2.18bn) coupled with KLCI’s bullish indicators, the index could advance further this week. However, unfriendly macro backdrops i.e. the Middle East conflict, China’s uneven economic recovery, as well as lingering worries over Malaysia’s economic and corporate earnings outlook, the index could face formidable hurdles at 1,465, 1,476 and 1,492 during the Nov results season

VIRTUAL PORTFOLIO Following the rally in share prices, we had squared off our virtual positions on SCGBHD (10.1% return), GENM (2.9% return) and MNHLDG (19.5% return).

Source: Hong Leong Investment Bank Research - 7 Nov 2023