Building a Base Near 1,440 Territory for Dec Window Dressing Effect

KLCI:    1448.0 (-0.1)
DOW:    35417 (84)
FCPO (RM):    3909 (12)
BRENT (USD):    81.7 (1.70)
USDMYR:    4.671 (-0.0099)
SGDMYR:    3.496 (-0.0014)
EURMYR:    5.116 (-0.0083)
AUDMYR:    3.090 (0.0026)
GBPMYR:    5.899 (-0.0028)
US: 10-yr yield (%)    4.32 (-0.07)
BNM:10-yr yield (%)    3.84 (-0.03)

Asia/US. Asian markets ended mixed as investors await pivotal economic readings across major economic zones and multiple speeches by the Fed officials for insights on the Fed’s next rate move. Sentiment was also dented by persistent fears over China economy and ongoing property crisis despite recent stimulus policies over the past two months. Leading up to the release of the PCE price index (30 Nov) and ISM (1 Dec), the Dow gained 84 pts at 35,417 while UST10Y yield slipped 6 bps to 4.32% (-70 bps from 16Y high of 5.02% on 23 Oct), as the latest dovish speeches by Fed officials reinforced the view that the Fed will initiate rate cuts as early as March 2024 (34.6% vs 13.7% a month ago). Sentiment was also boosted by improving consumer confidence and upbeat Sep home prices reports.

Malaysia. As investors weighed the peak of Nov results season and given the dearth of positive domestic cues, KLCI eased 0.1-pt to 1,448 after hovering within 1,444.5-1,452.6 band. Market breadth (G/L ratio) were in the negative territory for the 5th straight session, ending at 0.74 vs 0.42 previously. Foreign investors returned as net buyers (+RM115m, Nov: +RM1.46bn, YTD: -RM2.69bn) followed by local retailers (+RM37m, Nov: -RM220m, YTD: -RM0.96bn). In contrast, local institutions resumed their net outflows after nibbling RM8m a day before (-RM152m, Nov: -RM1.24bn, YTD: +RM3.65bn).  

Outlook After rallying from Nov low of 1,425 (10 Nov) to 9M high of 1,466.8 (15 Nov), KLCI is making a healthy pullback to end at 1,448 as investors weighed the peak of the Nov results season. Barring a downbeat Nov results season and a decisive fall below 1,441 (100D MA) levels, the odds would still favour the bulls to resume an uptrend in Dec (YE target 1,530) in line 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: +1.46bn).  Reiterate buy on dips approach, underpinned by (i) expectations of an end to the Fed’s rate hikes campaign; (ii) absence of escalation in the Israel-Hamas conflict and (iii) undemanding KLCI’s 13.1x CY2024 P/E (vs 10Y average 16.7x) accompanied by an all-time low of foreign shareholding 19.5% (as at Oct 2023).

Source: Hong Leong Investment Bank Research - 29 Nov 2023