Downside Is Likely to be Cushioned by Falling Yields and Traditional Dec Window Dressing

KLCI:    1446.1 (-2.0)
DOW:    35430 (13)
FCPO (RM): 3880 (8)
BRENT (USD):    83.1 (1.42)
USDMYR:    4.652 (-0.0185)
SGDMYR:    3.493 (-0.0033)
EURMYR:    5.106 (-0.0108)
AUDMYR:    3.083 (-0.0074)
GBPMYR:    5.899 (0.0003)
US: 10-yr yield (%)    4.26 (-0.07)
BNM:10-yr yield (%)    3.83 (-0.01)

Asia/US. Asian markets ended mixed as investors awaited pivotal economic readings such as the PCE prices and PMI from the US and China, offset growing optimism over an early pivot by the Fed amid latest dovish speeches by the Fed officials. The Dow ended flat with a 13-pt gain (from as much as +162 pts) amid fresh optimism that the economy will avoid recession after recording a robust revised 3Q23 GDP of 5.2% (forecast: 4.9%). Sentiment was also boosted by recent dovish remarks by Fed officials and falling yields (-7 bps to 4.26%) on bets (47% vs 14% a month ago) the Fed may start cutting interest rates in as early as March 2024. 

Malaysia. As investors weighed the cautious regional markets and the peak of Nov results season, KLCI shed 2 pts to 1,446 after oscillating between 1,445.6-1,450.4. Market breadth (G/L ratio) were in the negative territory for the 6th consecutive session, ending at 0.63 vs 0.74 previously. Foreign investors returned as net buyers for a 2nd day (+RM60m, Nov: +RM1.52bn, YTD: -RM2.64bn) followed by local retailers (+RM63m, Nov: -RM156m, YTD: -RM0.89bn). In contrast, local institutions resumed their net outflows for a 2nd session (-RM123m, Nov: -RM1.36bn, YTD: +RM3.53bn).  

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 1,446 yesterday as investors weighed the peak of the Nov results season. Barring a decisive fall below 1,442 (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: +1.52bn).  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 13x CY2024 P/E (vs 10Y average 16.6x) accompanied by an all-time low of foreign shareholding 19.5% (as at Oct 2023).

Source: Hong Leong Investment Bank Research - 30 Nov 2023