Bumpy ride ahead as Middle East conflict soars 

Technical pick: RGB

KLCI: 1656.39 (7.5)
DOW: 42156.97 (-173.2)
MSCI Asia: 195.84 (0.8)
FCPO (RM): 4078 (72)
BRENT (USD): 73.56 (1.79)
USDMYR: 4.157 (0.034)
SGDMYR: 3.2302 (0.011)
EURMYR: 4.6122 (-0.002)
AUDMYR: 2.8723 (0.018)
GBPMYR: 5.5394 (0.016)
US: 10-yr yield (%) 3.7315 (-0.049)
BNM:10-yr yield (%) 3.728 (-0.007)

Asia/US. As China, Hong Kong and Korea markets were closed for holidays, Asian markets wavered as investors digested escalating geopolitical tensions in Middle East, Powell’s comment that upcoming rate-cut policy is not on a preset path and BOJ’s future policy tone as the new PM Ishiba is perceived as a monetary policy hawk. The Dow plunged as much as 384 pts before paring the losses to -173 pts at 42,157 as investors sought refuge on safe havens after Iran launched missiles attack at Israel in response to Israel's invasion of southern Lebanon. On economic front, investors weighed an improved Aug JOLTS data while the ISM manufacturing index was stagnant at 47.2 in Sep. This week, remaining key events to focus are ISM services (Oct 3) and nonfarm payrolls (Oct 4), which will influence the Fed's upcoming policy direction. 

Malaysia. After sliding 24.5 pts in three consecutive session, KLCI rebounded 7.5 pts to 1,656.4, led by bargain hunting on PCHEM, PBBANK, MAYBANK, IHH and MISC. Market breadth soared to 1.77 vs 0.75 previously while daily volume was thin at 2.55bn shares (-20% vs avg 3.2bn in Sep) valued at RM2.41bn (-24% vs avg RM3.32bn in Sep). Foreign institutions continued their net selling (-RM61m, YTD: +RM3.49bn) for the 7th straight day alongside local retailers (-RM32m, YTD: -RM4.89bn) while local institutions (+RM93m, YTD: +RM1.39bn) emerged as the major net buyers.

Outlook In light of the Fed’s pivot and the narrative of a US soft landing, China’s comprehensive stimulus measures, RM appreciation, political stability and progressive domestic reform initiatives, coupled with improved economic growth and earnings delivery, KLCI is poised to revisit major resistance levels at 1,684 to 1,700 after a healthy consolidation. Nevertheless, investors should prepare for a bumpy road in a historically choppy month of Oct, navigating continued profit-taking by foreigners (to make room for China in their portfolios following China’s massive stimulus), insights from the upcoming Budget 2025, rising geopolitical tensions in the Middle East, and the political dynamics leading up to the US elections (Nov 5).

Technically, RGB is building a base near RM0.355 (Aug 5 low) and RM0.37 (200D MA). A successful breakout above immediate resistance of RM0.40 (downtrend line) may kickstart the next uptrend towards RM0.42 (38.2% FR) and RM0.46 (23.6% FR) targets. 

Source: Hong Leong Investment Bank Research - 2 Oct 2024