The local blue-chip benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) fell to revisit lows not seen in more than two months, dragged down by the lack of upside catalysts for the market from the recent Budget 2025 presentation. Investors were also kept sidelined by uncertainties surrounding the upcoming US Presidential elections and recent spike on US Treasury Yields signalling that the Federal Reserve’s future interest rate cuts may be less aggressive and more contained.

Week-on-week, the FBM KLCI slumped 27.69 points, or 1.68% percent to 1618.30, as dips in YTL Power (-52sen), YTL Corp (-34sen), CelcomDigi (-15sen), Nestle Malaysia (-RM3.80) and Public Bank (-16sen) overshadowed gains in IHH Healthcare (+31sen) and SD Guthrie (+7sen). Average daily traded volume last week rose to 2.81 billion shares versus 2.62 billion shares the previous week, while average daily traded value dwindled further to RM2.35 billion, against the RM2.53 billion average the previous week.

As expected, lack of direct incentives in Malaysia’s Budget 2025 to excite the equity market and the lacklustre mood ahead of the US presidential election on 5 November and the twoday Fed meeting immediately after that increased the profit taking pressure last week, which was reflected in heavy foreign selling. As it is, the increasing market expectations for a Donald Trump victory in the upcoming US Presidential elections have already led to a strengthening of the USD vis-à-vis the local and regional currencies and a change in the Fed’s dovish undertone in the upcoming meeting will complement it. The cautious market sentiment was worsened further by Israel’s targeted direct attack on Iran’s truck missile manufacturing facilities and surface-to-air missile arrays last Saturday, which could lead to a new round of escalation that will worsen the Middle East tension. As such, crude oil prices are expected to rise again after recent weakness, increasing the investor appetite for undervalued oil and gas (COASTAL, TP:RM1.89), (MHB, TP:RM0.61), (PANTECH, TP:RM1.17), (PCHEM, TP:RM6.93) and (VELESTO, TP:RM0.30) related stocks.

Against this backdrop, selling pressure in domestic equities could prevail this week as investors await the release of US 3Q24 GDP, September personal consumption expenditure and labour market data for October that will influence its central bank’s monetary policy decision next Thursday. Nevertheless, buying interest could return on further selling as investors look for bargains in prevailing investment themes like digital economy, energy transition and semiconductor as multibillion investments in these sectors are expected to continue irrespective of external dampeners. Besides, the FBMKLCI’s valuation is undemanding, trading at a consensus CY25 PER of 13.7x versus its 5-year historical average of 17.6x and comparable peers’ 13.1x. Thus, stocks like (CDB, TP:RM4.58), (TENAGA, TP:RM17.30), (TM, TP:RM7.93), (YTLPOWR, TP:RM6.39), (INARI, TP:RM4.10), etc. could attract buying interests apart from banking stocks like (Maybank, TP:RM11.85), (CIMB, TP:RM9.48), (PBBANK, TP:RM5.36) and (ABMB, TP:RM5.00) as investors expect a relief rally in undervalued blue chips in anticipation of a year-end or new year rally.

Investors should also consider buying domestic plays like (GAMUDA, TP:RM10.98), (IJM, TP:RM4.00) (IOIPG, TP:RM3.02), (MAHSING, TP:RM2.11), (SIMEPROP, TP:RM2.00), (SUNCON TP:RM6.15) and (IBRACO TP:RM1.36) that will benefit from the huge public spending and the government’s long-term plans to drive investments that will be catalysts for transit-oriented developments, new townships, appreciation of real estate prices, rentals, etc. Apart from benefiting from the strong labour market, higher wages and low interest rates, some of these property players will also benefit from their exposure to the Johor property market and new revenue streams from the data centre business. We should have more news flows with regards to the Johor-Singapore Special Economic Zone next month that could act as catalysts for the construction and property sectors after the lack of mega projects in the recent budget announcements disappointed investors and corporates alike. Risk averse investors should consider defensive consumer plays like (FFB, TP:RM1.97), (AEON, TP:RM1.68), (FOCUSP, TP:RM1.11) and (PADINI, TP:RM4.30) that will benefit from greater domestic activities and higher consumption after the increase in increase in civil servants' pay, RM200 increase to RM1,700 in minimum wages and robust tourist arrivals.

Source: TA Research - 28 Oct 2024