Tug-of-war Between the Bulls and the Bears

KLCI:    1455.9 (-7.5)
DOW:    35273 (+185)
FCPO (RM): 3988 (+35)
BRENT (USD):    81.96 (-0.49)
USDMYR: 4.677 (+0.02)
SGDMYR: 3.487 (+0.0)
EURMYR: 5.099 (+0.01)
GBPMYR: 5.859 (+0.02)
US: 10-yr yield (%) 4.40 (+0.01)
BNM:10-yr yield (%) 3.85 (-0.01)

Asia/US. Asian markets ended mixed as traders contended with the Nov FOMC minutes, indicating the Fed's commitment to a restrictive stance amid stubborn inflation. Sentiment was also dampened by NVIDIA's negative 4Q outlook as export restrictions affect sales in China and other countries. Ahead of the Thanksgiving holiday, the Dow jumped 185 pts at 35,273 while the UST10Y yield fell as low as 4.36% before ending +1 bps at 4.41% as investors weighed the downbeat Oct durable goods orders, a sharp decline in weekly jobless claims and a higher-than-expected 1Y inflation expectations. These factors collectively underscored that the economy is softening after about 20 months of Fed’s policy tightening, but remains resilient enough to potentially avoid a recession, signalling the Fed may remain cautious in future policy decisions to tackle sticky inflation.

Malaysia. KLCI continued its choppy mode, slipping 7.5 pts to 1,455.9 (its 4th decline in the last five days), as investors evaluated the ongoing Nov results season and the absence of fresh catalysts. Market breadth retreated to 0.77 from 1.22 previously, whilst daily value dropped 3.3% to RM2.04bn. Foreigners continued its buying momentum for 3rd day (+RM36m, Nov: +RM1.31bn, YTD: -RM2.85n) followed by local retailers (+RM25m, Nov: -RM306m, YTD: -RM1.04bn) whilst local institutions retained as major net sellers for a 2nd day in a row (-RM61m, Nov: -RM1.0bn, YTD: +RM3.89bn). 

Outlook. Barring a downbeat Nov results season and decisive fall below 1,444-1,450 levels, KLCI is still expected to charge higher in Dec (YE target 1,530) in tandem with the traditional year-end window dressing effect (92% positive hit rate in Dec since the GFC), supported by a resumption of foreign net buying (Oct: -RM2.19bn, Nov MTD: +1.31bn). Reiterate buy on dips approach, underpinned by (i) easing US-China tensions following the symbolic Biden-Xi meeting; (ii) expectations of an end to the Fed’s rate hikes campaign; (iii) the absence of escalation in the Israel-Hamas conflict and (iv) undemanding KLCI’s 13.2x CY2024 P/E (vs 10Y average 16.6x).

Source: Hong Leong Investment Bank Research - 23 Nov 2023