The government raised RON95 petrol and diesel prices by 20 sen/liter each to RM2.30 and RM2.20 respectively, effective today. (Source: media)

Comment: This is expected to lift the inflation rate for Oct14 to 3.5% vs. an estimated 2.8% in Sep14. Note that the last petrol price hike was in Sep13. We view this as slightly negative for the market, with the prospect of higher interest rates next year (vs. none expected in 4Q14).

Consumer sentiment is expected to be negatively affected, such as the consumer, gaming and property sectors (table below). The building material sector is expected to be mildly hit, with the potential of passing on some of these higher costs to the construction sector. Impact on the banking and O&G sectors is neutral. We expect the impact on corporate earnings to show up in their 4Q14 results announcement.

Following many rounds of quarterly earnings cuts, we are concern that there will be more quarter earnings disappointments ahead. Our KLCI target of 1,980 (based on 16 2015E earnings) is currently under review, pending the announcement of Budget 2015.

Source: Affin Hwang Capital Research - 2 Oct 2014