Consolidation Prevails Amid the External Key Risk Events and Nov Results Season

KLCI:    1445.2 (-7.1)
DOW:    34338 (55)
FCPO (RM): 3802 (59)
BRENT (USD):    82.5 (1.09)
USDMYR:    4.709 (0.0155)
SGDMYR:    3.463 (0.0039)
EURMYR:    5.028 (0.0075)
AUDMYR:    3.001 (0.0063)
GBPMYR:    5.753 (-0.0197)
US: 10-yr yield (%)    4.64 (-0.01)
BNM:10-yr yield (%)    3.88 (0.02)

Asia/US*. Asian markets ended mixed as investors assessed Moody's downgrade of the US credit rating from 'stable' to 'negative' while maintaining its AAA rating, mainly due to risks to the nation's fiscal strength and political dysfunction. Sentiment was also cautious ahead of the big risk events from (1) the US CPI (14 Nov) and retail sales (15 Nov) figures; (ii) China’s retail sales (15 Nov); and (iii) the highly anticipated meeting (15 Nov) between Biden and Xi Jinping during the APEC summit. The Dow ended mixed (+55 pts to 34,338) as investors weighed Moody's downgrade of the US credit outlook to negative from stable and awaiting the CPI and PPI reports due this week, which are expected to offer insights into economic performance and potential actions by the Fed. Overall, the index may remain volatile ahead of the Biden-Xi meeting and looming US government shutdown risk on 17 Nov.  

Malaysia. Mirroring the sluggish Wall St and regional markets coupled with persistent weak RM (vs USD), KLCI slipped 7.1 pts to 1,445.2 (-4.8 pts WoW) last Friday (ahead of the Deepavali holiday yesterday). Market breadth deteriorated to 0.64 vs 0.93 previously whilst daily value continued to shrink for the 4th straight session to RM1.61bn. Local institutions (-RM101m, Nov: -RM647m, YTD: +RM4.25bn) were the major net sellers for the 7th consecutive day whilst foreigners (+RM71m, Nov: +RM863m, YTD: -RM3.3bn) and local retailers (+RM30m, Nov: -RM215m, YTD: -RM0.95n) emerged as the net buyers. 

Outlook. Ahead of the external key risk events and the ongoing Nov results season, KLCI is likely to extend its consolidation mode, unless the index is able to break above the stiff triple top hurdle at 1,465 zones successfully. We reiterate our buy on dips approach 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 - 14 Nov 2023