Sideways Ahead of the Key US and China Economic Readings This Week

KLCI:    1451.0 (-5.4)
DOW:    36204 (    -41)
FCPO (RM):    3840 (16)
BRENT (USD):    78.0 (-0.85)
USDMYR:    4.658 (-0.016)
SGDMYR:    3.489 (-0.0097)
EURMYR:    5.065 (-0.0281)
AUDMYR:    3.098 (-0.0008)
GBPMYR:    5.902 (-0.018)
US: 10-yr yield (%)    4.25 (0.06)
BNM:10-yr yield (%)    3.82 (0.00)

Asia/US. Asian markets ended mixed on profit taking after a blowout Nov rally, as investors await key economic data from the US (i.e. jobs openings, ISM services PMI, non-farm payrolls etc) and China (i.e. services PMI, trade, inflation etc), coupled with the upcoming China Politburo meeting for clues on the economic and monetary policy outlook. After rallying 912 pts four days in a row, the Dow fell as much as 216 pts before narrowing the losses to 41 pts at 36,204 as investors weighed current overbought technical readings (Nov: +8.8%) and a downbeat Oct US factory orders (-3.6% vs forecast -2.8%). This week, investors will focus on a slew of key economic readings for clues on the Fed’s next steps after Powell last Friday pushed back against Wall Street’s growing bets of a rate cut in 1H24 but vowed to move cautiously with borrowing costs at a 22Y high.

Malaysia. Tracking the cautious regional peers, KLCI extended its sideways trend (-5.4 pts to 1,451), dragged down by NESTLE, PCHEM, PMETAL, PBBANK and TENAGA. Sentiment was subdued amid a negative market breadth for the 9th consecutive session at 0.52 vs 0.92 last Friday. After net buying RM317m four days in a row, foreign investors turned net sellers (-RM92m, Dec: +RM20m, YTD: -RM2.58bn) whilst local retailers (+RM44m, Dec: +RM76m, YTD: -RM0.8bn) and local institutions (+RM48m, Dec: -RM96m, YTD: +RM3.39bn) emerged as major net buyers. 

Outlook. Barring a decisive fall below 1,442 (uptrend line support), the odds would still favour the bulls to resume its ascent in Dec (Oct: +1.3%, Nov: +0.7%), in anticipation of the traditional year-end window dressing effect (92% positive hit rate in Dec since the GFC). Additionally, signs of improvement in foreign net buying (Oct: -RM2.19bn, Nov: +RM1.55bn, Dec: +RM20m), further support our optimism. Reiterate buy on dips approach, underpinned by (i) expectations of an end to the Fed’s rate hikes campaign and optimism that the US economy is going to avoid a hard landing; (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).

VIRTUAL PORTFOLIO We had squared off our virtual portfolio positions on SMRT (15.4% gain) and OSK (2.5% gain) yesterday due to expiry.

Source: Hong Leong Investment Bank Research - 5 Dec 2023