On risk-off mode amid flaring Middle East tensions and persistent foreign net outflows 

Technical pick: AMBANK

KLCI: 1641.55 (2.2)
DOW: 42011.59 (-184.9)
MSCI Asia: 194.92 (-0.9)
FCPO (RM): 4224 (42)
BRENT (USD): 77.62 (3.72)
USDMYR: 4.2218 (0.046)
SGDMYR: 3.2547 (0.014)
EURMYR: 4.6591 (0.036)
AUDMYR: 2.8906 (0.011)
GBPMYR: 5.5379 (-0.013)
US: 10-yr yield (%) 3.8458 (0.065)
BNM:10-yr yield (%) 3.731 (0)

Asia/US. Despite Nikkei 225 staging a 2% rally on dovish remarks by new PM Ishiba, Asian markets ended lower, given heightened tensions in the Middle East and fading China’s stimulus rally that dampened risk appetite. Ahead of nonfarm payrolls data tonight, Dow tumbled as much as 348 pts before paring its losses to 185 pts at 42,011 amid escalating conflicts in the Middle East as Brent oil rallied 3.7% following Biden’s remarks about possible Israeli strike on Iran facilities, overshadowed a positive Sep ISM services data.

Malaysia. KLCI staged a mild rebound (+2.3 pts to 1,641.6) after sliding 34.1 pts in the last five sessions. Market breadth remained negative but improved to 0.94 vs 0.31 previously while daily volume tumbled 14.7% to 3.29bn valued at RM2.52bn (-7.3% D-D) on risk-off mode. Foreign institutions continued their net selling for the 9th consecutive day (-RM301m, Oct: -RM525m, YTD: +RM3.03bn) while local institutions (+RM281m, Oct: +RM494m, YTD: +RM1.8bn) alongside local retailers (+RM20m, Oct: +RM31m, YTD: -RM4.83bn) emerged as the major net buyers.

Outlook In wake 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 1,684-1,700 levels after a healthy consolidation. Nevertheless, investors should prepare for a rocky path in a historically challenging month of Oct, navigating continued net outflows by foreigners (-RM1.3bn in 9th consecutive session), 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, AMBANK is consolidating near 50D MA at RM4.90 with stronger support at RM4.75 (50% FR) zones before resuming its upward momentum. A successful breakout above RM5.12 (20D MA) may spur greater upside towards RM5.32 (YTD high) zones. 

Source: Hong Leong Investment Bank Research - 4 Oct 2024