Volatility Ahead Amid Macro Uncertainty and Local Headwinds 

KLCI: 1491.21 (-2.7)
DOW: 37266.67 (-94.5)
MSCI Asia: 161.74 (-3.2)
FCPO (RM): 3826 (11)
BRENT (USD): 77.88 (-0.41)
USDMYR: 4.7172 (0.023)
SGDMYR: 3.5101 (0.007)
EURMYR: 5.1312 (0.021)
AUDMYR: 3.0912 (-0.009)
GBPMYR: 5.9822 (0.048)
US: 10-yr yield (%) 4.1019 (0.044)
BNM:10-yr yield (%) 3.87 (0.05)

Asia/US. Asian markets ended lower amid a mixed batch of China’s economic data and Beijing’s resistance of big stimulus to revive its ailing economy. Sentiment was also dented by ongoing conflict in the Red Sea (potentially affecting the global supply chain and raise inflationary pressures), and possible delay in loosening monetary policy after Fed’s Waller advocated moving ‘carefully’ with rate cuts. The Dow tumbled as much as 228 pts before paring its losses to 95 pts at 37,266 as US10Y bond yields rose (+4 bps to 4.1%) following the release of stronger-than-expected economic data (eg retail sales, housing market index, industrial production) fuelled Fed’s pivot repricing. Recent resilient economic data and with central bank officials striking a more cautious tone about prospects for easing, traders are now pricing in a 55% chance of a March 25 bps cut (vs 65% a week ago). 

Malaysia. Mirroring the sluggish Wall St and regional markets, KLCI slipped 2.7 pts or 0.2% to 1,491.2. Market breadth was bearish at 0.32 from 0.42 a day ago, triggered by relentless corrections and limit-downs in selected lower liners and ACE stocks (FBM Small Cap -1.4% and ACE -2.9%). Local institutions (+RM38m, Jan: -RM29m, Dec: -RM165m) and retailers (+RM1m, Jan24: -RM474m, Dec: -RM92m) emerged as the major net buyers whilst foreign investors (-RM39m, Jan: +RM503m, Dec: +RM257m) returned as net sellers. 

Outlook. In line with the recent Fed’s restrictive remarks, lingering geopolitical tensions in the Middle East, and potential disappointment of Beijing’s stimulus measures, KLCI may experience near term volatility (supports: 1,465-1,471-1,482; resistance: 1,504-1,512-1,528 zones). Sentiment could turn more cautious, compounded by renewed weakness in RM (vs USD) coupled with corrections and limit-downs in selected lower liners and ACE stocks lately. Nevertheless, downside is likely to be well-cushioned by favourable domestic leads (e.g. economic transformation blueprints via the NETR, NIMP2023 and reinvigoration of developments in Johor; rising FDI momentum, the return of foreign investors), and rising risk appetite for the laggard Bursa Malaysia amid Fed’s expected pivot and undemanding KLCI’s CY 2024 P/E at 13.4x (vs 10Y mean 17.2x). 

Source: Hong Leong Investment Bank Research - 18 Jan 2024