Drifting Sideways Pending Fresh Catalysts

KLCI:    1445.8 (-3.6)
DOW:    36054 (    -70)
FCPO (RM):    3688 (-31)
BRENT (USD):    74.3 (-2.90)
USDMYR:    4.668 (0.0048)
SGDMYR:    3.482 (-0.004)
EURMYR:    5.037 (-0.0139)
AUDMYR:    3.069 (0.0005)
GBPMYR:    5.883 (-0.0111)
US: 10-yr yield (%)    4.10 (-0.06)
BNM:10-yr yield (%)      3.73 (-0.05)

Asia/US. Ahead of the key economic readings from the US (ADP and non-farm jobs data) and China (i.e. trade and inflation data), Asian markets rebounded from recent pullback amid sliding bond yields, stemming from rising bets for a peak in interest rates among major central banks globally. 

Persistent profit taking witnessed the Dow finishing -70 pts at 36,054 (after a phenomenal 8.8% rally in Nov), surrendering an early 168-pt gain following a cooling ADP report. Sentiment was pressured by decline in energy stocks following a 3.7% slide in Brent price amid soaring US gasoline inventories and worries about China’s demand due to its patchy economy. Also, mega tech shares took a beating, led by a 2.3% decline in Nvidia as it collaborated with the US government to comply with export restrictions for its new chips for the Chinese market. Ahead of the crucial non-farm payroll data on 8 Dec, the US 10YT yield lost 6 bps to 4.10% as recent data heightened expectations that the Fed has ended its interest rate hiking cycle and will begin to cut rates as early as Mar 2024. 

Malaysia. Bucking the rally in regional markets, KLCI continued to drift lower for the 3rd straight day (-3.6 pts to 1,446.82) in a muted trade, led by selloff on CDB, HLBANK, AXIATA, IHH, PCHEM and SIME. Sentiment remained tepid with negative market breadth for the 11th consecutive session at 0.81 vs 0.75 a day ago. Foreign investors turned net sellers for a 3rd day (-RM39m, Dec: -RM34m, YTD: -RM2.64bn) whilst local institutions (+RM1m, Dec: -RM117m, YTD: +RM3.37bn) and local retailers (+RM35m, Dec: +RM151m, YTD: -RM0.73bn) emerged as major net buyers. 

Outlook. KLCI may continue its sideways consolidation as investors await more cues of inflation and interest rate data from key regional economies. Barring a decisive fall below 1,443 (uptrend line support), the odds would still favour the bulls to resume its ascent in Dec (Oct: +1.3%, Nov: +0.7%). The optimism is supported by (i) expectations that the Fed has ended its rate hike cycle and will begin to cut rates in 1H24; (ii) the traditional year-end window dressing effect (92% positive hit rate in Dec since the GFC); (iii) signs of improvement in foreign net buying amid an uptick in Nov shareholding from all-time low in Oct (Oct: 19.5%, Nov: 19.6%).

Source: Hong Leong Investment Bank Research - 7 Dec 2023