Expect a healthy overbought pullback after hitting our envisaged 1,502-1.528 resistance

KLCI: 1498.83 (3.1)
DOW: 37525.16 (-157.8)
MSCI Asia: 165.28 (0.2)
FCPO (RM): 3738 (6)
BRENT (USD): 77.59 (1.47)
USDMYR: 4.6425 (-0.009)
SGDMYR: 3.493 (-0.003)
EURMYR: 5.0807 (-0.008)
AUDMYR: 3.1126 (-0.003)
GBPMYR: 5.912 (0.006)
US: 10-yr yield (%) 4.0133 (-0.017)
BNM:10-yr yield (%) 3.86 (0.005)

Asia/US. Asian markets ended mostly higher amid rallies in technology stocks, led by overnight gains on Wall St and 34Y high in NIKKEI 225. Sentiment was also boosted by PBOC’s signal that Beijing is prepared to further loosen policy by cutting banks’ official reserves. The Dow tumbled as much as -310 pts before reducing its losses to -158 pts at 37,525 as investors braced for the start of the 4Q23 results season and the Dec inflation rate (11 Jan), followed by the PPI prices (12 Jan) and Fed officials’ speeches to assess the future path of US monetary policy. 

Malaysia. Tracking higher Wall St and favourable domestic leads, KLCI rose as much as 8.2 pts before paring its gains to 3.1 pts to 1,498.8. Market breadth tuned negative in five days at 0.68 vs 1.34 a day ago while trading volume and value lost 8% and 11% to 6.4bn shares valued at RM3.8bn, respectively. Local retailers were the net sellers for the 5th straight day (-RM26m, Jan24: -RM468m, Dec:-RM92m) followed by foreign investors (-RM35m, Jan: +RM519m, Dec: +RM257m) whilst local institutions (+RM61m, Jan: -RM31m, Dec: -RM165m) emerged as the major net buyers. 

Outlook: After surging almost 46 pts in five straight sessions, we expect KLCI to trend sideways as investors weigh the upcoming US inflation data and the start of the 4Q23 results season. Lingering geopolitical tensions were also on the radar amid attacks in the Red Sea, prolonged Israel-Hamas war, coupled with the impending Taiwan Presidential election outcome this weekend. Nevertheless, downside is well-cushioned by favourable domestic leads (eg economic transformation via the NETR, NIMP2023 and reinvigoration of developments in Johor; rising FDI momentum, the return of foreign investors), and supported by rising risk appetite for the laggard Bursa Malaysia amid Fed’s expected pivot and undemanding KLCI’s CY 2024 P/E at 13.3x (vs 10Y mean 16.6x). Major supports for Jan are 1,465-1,471 whilst stiff resistances are located near 1,502-1,512-1,528 zones.

Source: Hong Leong Investment Bank Research - 10 Jan 2024