The Path Is Clear to Re-challenge Higher Grounds at 1,476-1,492 Levels

KLCI:    1466.8 (15.1)
DOW:    34991 (164)
FCPO (RM):    3999 (21)
BRENT (USD):    81.1 (-1.40)
USDMYR:    4.673 (-0.0463)
SGDMYR:    3.464 (-0.0046)
EURMYR:    5.071 (0.0137)
AUDMYR:    3.040 (0.0317)
GBPMYR:    5.823 (0.0197)
US: 10-yr yield (%)    4.53 (0.08)
BNM:10-yr yield (%)    3.84 (-0.06 )

Asia/US. Asian markets recorded a notable surge, propelled by upbeat Oct retail sales and industrial data from China. Additionally, a tame Oct CPI reading in the US fuelled hopes of a potential conclusion to the Fed's aggressive hiking cycle. Sentiment was further bolstered by the passing of a stop-gap bill by the US House (extending until mid-Jan 2024), effectively averting a government shutdown scheduled for 17 Nov. The Dow soared 164 pts to 34,991 (its 4th straight gain) as investors celebrated the cooling Oct CPI and unexpected decline in PPI reports. Coupled with a mild drop in retail sales, these factors fostered hopes of Fed-peak bets and the US economy is on its final descent to a soft landing. Sentiment was also boosted by the first Biden-Xi meeting in over a year, with hopes of repairing a relationship strained by economic competition and military and diplomatic missteps.

Malaysia. Mirroring Wall St and regional markets’ rallies coupled with stronger RM (vs USD), KLCI jumped 15.1 pts to 1,466.8, with 27 component stocks registered positive gains. Market breadth soared to 1.66 vs 1.02 a day ago, supported by a 25% spike in trading value to RM2.21bn. Foreign institutions resumed net buying after a mild RM5m selloff on 14 Nov (+RM192m, Nov: +RM1.05bn, YTD: -RM3.11n), while local (-RM110m, Nov: -RM775m, YTD: +RM4.13bn) and local (-RM82m, Nov: -RM273m, YTD: -RM1.01bn) investors continued their net selling spree. 

Outlook. Tracking Wall St rally amid cooling inflation and falling yields, KLCI is poised to revisit the formidable hurdles at 1,476-1,492 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 13.3x CY2024 P/E (vs 10Y average 16.6x); and (iii) the traditional year-end window dressing effect (92% positive hit rate in Dec since the GFC).

Source: Hong Leong Investment Bank Research - 16 Nov 2023