Consolidation Returns Amid Powell’s Restrictive Policy Stance

KLCI:    1452.3 (-5.3)
DOW:    33892 (-220)
FCPO (RM):    3754 (11)
BRENT (USD):    80.0 (0.47)
USDMYR:    4.693 (0.01)
SGDMYR:    3.459 (0.0083)
EURMYR:    5.021 (0.0258)
AUDMYR:    3.007 (-0.0007)
GBPMYR:    5.773 (0.0379)
US: 10-yr yield (%)    4.62 (0.13)
BNM:10-yr yield (%)    3.86 (-0.01)

Asia/US. Asian markets ended mixed as investors awaited further insights from Powell on the outlook for rates amid a heavy schedule of Fed speakers. Sentiment was also dampened by deepening deflation pressures on the heels of latest batches of disappointing economic data in China, ramping up expectations of more stimulus measures from Beijing to support growth. Despite signs of cooling US labour market (evidenced by a 7th consecutive gain in weekly jobless claims), the Dow tumbled 220 pts to 33,892 while the US10YT yield soared 14 bps to 4.63% as Powell poured cold water on Wall Street’s dovish wagers as he reiterated the Fed's commitment to tightening policy if necessary. Meanwhile, higher yield was also dampened by a lacklustre sale for 30Y Treasury auctions. 

Malaysia. KLCI continued its profit taking pullback for a 3rd straight session, ending -5.3 pts at 1,452.3 after rallying 29.3 pts from 2-6 Nov. This downward trend aligns with cautious sentiment in regional markets and continued losses of RM (vs USD) for the 3rd day in a row to RM4.693. Market breadth was negative at 0.93 vs 1.19 a day ago. Local institutions (-RM68m, Nov: -RM545m, YTD: +RM4.35bn) were the major net sellers for the 6th consecutive day whilst foreigners (+RM55m, Nov: +RM789m, YTD: -RM3.37bn) and local retailers (+RM13m, Nov: -RM244m, YTD: -RM0.98bn) emerged as the net sellers. 

Outlook. In the wake of Powell’s reiteration of a restrictive policy to bring down inflation to a 2% goal, elevated bond yields and RM weakness, coupled with ongoing Nov results season, KLCI is likely to resume its consolidation mode after failing to surpass the stiff triple top hurdles near 1,465. 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 13.2x CY2024 P/E (vs 10Y average 16.7x); and (iii) the traditional year-end window dressing effect (92% positive hit rate in Dec since the GFC).

Source: Hong Leong Investment Bank Research - 10 Nov 2023