To Re-challenge the Stiff 1,465 Hurdles Amid Falling US CPI and Sliding Yields

KLCI:    1451.7 (6.5)
DOW:    34828 (490)
FCPO (RM): 3941 (37)
BRENT (USD):    82.5 (-0.05)
USDMYR: 4.719     (0.0103)
SGDMYR: 3.469 (0.0056)
EURMYR: 5.057 (0.0289)
AUDMYR: 3.009 (0.008)
GBPMYR: 5.803 (0.0504)
US: 10-yr yield (%): 4.45 (-0.19)
BNM:10-yr yield (%) 3.90 (0.02)

Asia/US. Asian markets inched up for a 2nd consecutive day following last week’s rout, as investors brace for the crucial US and China inflation prints, as well as eagerly awaiting the highly anticipated Biden-Xi meeting for signs of thawing US-China relations. The Dow surged 489 pts to 34,827 while the US10YT yield sank 19 bps to 4.45% (-57 bps from 16Y high of 5.02%), as investors cheered the cooling Oct CPI data, fostering hopes of Fed-peak bets. Following the report, Fed-funds futures indicated a significant shift in market sentiment, with traders nearly eliminating the odds of a rate hike in the upcoming Dec and Jan FOMC meetings and are now pricing in a 65% probability of 25 bps cut to 5.25% as early as May 24. After rallying 935 pts for three days in a row, the index may consolidate its gains ahead of the Biden-Xi meeting and looming US government shutdown risk on 17 Nov.  

Malaysia. After losing 19.5 pts in four straight day, KLCI ended +6.5 pts at 1,451.7 amid bargain hunting activities on selected index-linked heavyweights i.e. CDB, PCHEM, GENTING, SIMEPLT, MAXIS and PBBANK. Market breadth recovered to 1.02 0.64 last Friday, supported by a 10% hike in trading value to RM1.77bn. Local retailers (+RM23m, Nov: -RM191m, YTD: -RM0.93n) were the major net buyers for the 3rd consecutive session while local (-RM18m, Nov: -RM665m, YTD: +RM4.23bn) and foreign (-RM5m, Nov: +RM856m, YTD: -RM3.3bn) institutions emerged as the main net sellers. 

Outlook. Tracking Wall St rally amid cooling inflation and sliding yields, KLCI is poised to revisit the stiff hurdles at 1,465-1,476 zones. Reiterate 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 - 15 Nov 2023