Volatility ahead amid escalating Middle East conflicts and continued foreign funds exit

Technical pick – YENHER 

KLCI: 1635.29 (5.3)
DOW: 41954.24 (-398.5)
MSCI Asia: 196.56 (1.8)
FCPO (RM): 4392 (49)
BRENT (USD): 80.93 (2.88)
USDMYR: 4.2845 (0.065)
SGDMYR: 3.2855 (0.033)
EURMYR: 4.6952 (0.042)
AUDMYR: 2.9077 (0.021)
GBPMYR: 5.6003 (0.044)
US: 10-yr yield (%) 4.0256 (0.058)
BNM:10-yr yield (%) 3.761 (0.03)

Asia/US. Ahead of the reopening of China markets after Golden Week holidays, most Asian bourses ended higher, boosted by robust US jobs data and easing US hard landing concerns. Sentiment was also aided by Beijing’s stimulus blitz, reinvigorating investor confidence over the world’s 2nd largest economy. The Dow tumbled 398 pts at 41,954 while the US10Y bond yield (+6 bps to 4.03%) and Brent oil prices (+2.88% to USD80.9) surged as investors recalibrated their expectations for Fed’s rate cuts following a blowout jobs report last Friday, coupled with heightened Middle East tensions after Hezbollah fired rockets at Israel's 3rd largest city Haifa. This week, investors will closely monitor Sep’s CPI, PPI, and consumer sentiment reports, together the Sep FOMC minutes, to gauge the future direction of monetary policy. Meanwhile, 3Q24 earnings season will begin this week, featuring JPM, WFC, BLK, DPZ and DAL results. 

Malaysia. In line with the Wall St and regional markets rebound, KLCI staged a 5.3-pt rebound to 1.635.3 after sliding 30.1 pts WoW, led by bargain hunting on PMETAL, SIME, CDB, PBBANK, PBB and MAXIS. Despite an improvement in market breadth to 1.15 vs 0.67 last Friday, daily volume reduced 11% to 2.76bn shares valued at RM2.74bn. Foreign institutions continued their net selling for the 11th consecutive day (-RM148m, Oct: -RM995m, YTD: +RM2.55bn) alongside local retailers (-RM29m, Oct: +RM17m, YTD: -RM4.84bn) while local institutions (+RM177m, Oct: +RM878m, YTD: +RM2.28bn) emerged as major net buyers for the 11th straight session.

Outlook Ahead of the tabling of Budget 2025 on Oct 18, KLCI is expected to consolidate further, as investors weigh continued net outflows by foreigners amid portfolio rebalancing and rotation of funds potentially towards high-flying China & Hong Kong markets (-RM1.77bn in 11th consecutive session), surging geopolitical tensions in the Middle East, and the political dynamics during the US elections countdown (Nov 5).

Technically, YENHER is poised to stage a breakout above 200D MA or RM0.89 soon after consolidating well above 0.82-0.83 region. A successful breakout above RM0.89 will witness more upside towards RM0.95 (50% FR) and RM1.00 psychological barrier. 

Source: Hong Leong Investment Bank Research - 8 Oct 2024