Set to Re-take 1,465-1,488 Hurdles Amid Dovish Fed and Potential Window Dressing Effect

KLCI: 1448 (0.9)
DOW: 37090 (514)
FCPO (RM): 3670 (-30)
BRENT (USD): 74.2 (1.0)
USDMYR: 4.706 (0.02)
SGDMYR: 3.503 (0.01)
EURMYR: 5.121 (0.05)
GBPMYR: 5.941 (0.04)
US: 10-yr yield (%) 4.02 (-0.18)
BNM:10-yr yield (%) 3.85 (0.10)

Asia/US. Led by a 1.15% fall on SHCOMP and prior to the FOMC policy updates, Asian markets ended mixed as the Communist Party’s annual economic work conference stopped short of announcing more forceful stimulus to boost faltering growth amid local debt risks, a beleaguered property sector, high unemployment and sluggish exports. The Dow rallied 512 pts to close at all-time high of 37,090 while the US10YT sank 18 bps to 4.02% as the Fed held rates unchanged for the 3rd consecutive meeting and set the table for multiple cuts in 2024 (minimum 75 bps) and 2025 (minimum 100 bps) amid easing inflation threat. Fed officials now see core inflation falling to 3.2% in 2023 and 2.4% in 2024, subsequently to 2.2% in 2025 and back to the 2% target in 2026. 

Malaysia. After falling 14.4 pts last week, KLCI ended higher for the 3rd consecutive day (+0.9-pt to 1,448) as investors weighed PM’s new cabinet team and brace for the key inflation readings and global major central banks’ policy updates. Market breadth (G/L ratio) rebounded to 1.29 from 0.8 a day ago. Local institutions (+RM67m, Dec: +RM264m, YTD: +RM3.75bn) emerged as the major net buyers for the 6th straight day while foreign investors (-RM44m, Dec: -RM336m, YTD: -RM2.94bn) and local retailers (-RM23m, Dec: +RM72m, YTD: -RM0.81bn) were the key net sellers. 

Outlook. Mirroring the rally from Wall St, KLCI is expected to rechallenge immediate resistance at 1,465-1,475 levels before heading towards the formidable clusters near 1,488-1,500 zones. The optimism is supported by (i) Fed’s pivot and optimism of a soft landing in the US economy; (ii) the traditional year-end window dressing effect (92% positive hit rate in Dec since the GFC); (iii) an uptick in Nov shareholding from all-time low in Oct (Oct: 19.5%, Nov: 19.6%), (iv) improved core corporate earnings outlook -0.3%/+8.0% for CY23/24, accompanied by end-2023/2024 KLCI targets at 1,490/1,550 levels and (v) policy continuity and execution amid easing political risk premium. 

Source: Hong Leong Investment Bank Research - 14 Dec 2023