Wild swings ahead amid Middle East tensions and foreigners’ net outflows 

Technical pick: Hang Seng index

KLCI: 1639.31 (-17.1)
DOW: 42196.52 (39.5)
MSCI Asia: 195.81 (0)
FCPO (RM): 4148 (-48)
BRENT (USD): 73.9 (0.34)
USDMYR: 4.176 (0.019)
SGDMYR: 3.2406 (0.01)
EURMYR: 4.6233 (0.011)
AUDMYR: 2.8794 (0.007)
GBPMYR: 5.5507 (0.011)
US: 10-yr yield (%) 3.7809 (0.049)
BNM:10-yr yield (%) 3.731 (0.003)

Asia/US. Ahead of the key US NF payrolls data, Asian markets ended mixed in wake of the escalating tensions in the Middle East. On the contrary, HSI rallied 2.68% after suffering a 1.68% loss a day ago on hopes that more fiscal and property policies will come targeted at reversing the downturn in economic growth and deflationary forces in the economy. Despite rising tensions in the Middle East, the Dow surged 341 points to a record high of 42,352, fuelled by the strong Sep NF jobs data that eased concerns of a hard landing for the US economy, and dampened expectations for aggressive rate cuts in Nov. This week, investors will closely monitor Sep’s CPI, PPI, and consumer sentiment reports, along with the minutes from the Sep’s FOMC meeting, to gauge the future direction of monetary policy. 

Malaysia. KLCI continued its consolidation, losing 11.6 pts to 1,630 (WoW: -30.1 pts, Oct: -18.9 pts/-1.3%) after hitting YTD high 1,684.7 (Aug 29) amid heightened tensions in the Middle East and persistent profit-taking by foreigners as global funds realigned their focus to China (Oct: +8.1%) and HK (Oct: +8.8%) markets following China’s economic “bazooka”. Market breadth deteriorated to 0.67 vs 0.94 previously while daily volume reduced further to 3.1bn shares valued at RM2.67bn. Foreign institutions continued their net selling for the 10th consecutive day (-RM322m, Oct: -RM847m, YTD: +RM2.70bn) while local institutions (+RM307m, Oct: +RM801m, YTD: +RM2.1bn) alongside local retailers (+RM15m, Oct: +RM46m, YTD: -RM4.81bn) emerged as major net buyers.

Outlook We reiterate our view that KLCI is expected to consolidate further, riding on a historically challenging month of Oct, as investors weigh continued net outflows by foreigners due to portfolio rebalancing (-RM1.6bn in 10th consecutive session), insights from the upcoming Budget 2025, rising geopolitical tensions in the Middle East, and the political dynamics during the US elections countdown (Nov 5).

Technically, HSI has surpassed the previous peak of 22,700 (Jan 2023), which could fuel for further upside. However, the benchmark could face formidable barriers at 24.8k (61.8% FR) and 26.7k (overhead resistance) amid steeply overbought technical readings. On the flip side, pullback support levels are identified at 20.3k (10D MA) and 21.3k (200W MA) levels.

Source: Hong Leong Investment Bank Research - 7 Oct 2024