Cautious Sentiment Coupled With Foreign Outflow Resumption
Most Asian markets retreated, led by sharp losses in Hong Kong tech stocks, while Japan’s recent rally showed signs of fatigue. Meanwhile, safe haven gold surged to a record high above USD4,000/oz as economic uncertainty and a dovish Fed continued to drive markets away from the dollar toward precious metals. A weak lead from Wall Street also weighed on sentiment, with major indices retreating from record highs amid profit-taking in chip, AI, and cloud stocks, compounded by concerns over a prolonged U.S. government shutdown.
US equities extended record highs overnight (S&P 500: +0.58%, Nasdaq: +1.12% and Dow: -1 pt), led by gains in tech and AI-linked megacaps, as investors parsed the Fed’s latest meeting minutes amid a prolonged government shutdown. Most Fed policymakers signalled that further rate cuts may be appropriate, citing a softening labour market, though uncertainty remains around the pace and extent of easing given persistent inflation concerns. Chipmakers and AI beneficiaries led the record highs in S&P and Nasdaq after Jensen Huang stoked optimism on AI demand and expressed interest in further investment in Elon Musk’s xAI venture.
In wake of the resumption of foreign net outflows together with Wall Street and regional market weakness, the KLCI slipped as much as 8.9 pts before paring losses to -2.5 pts at 1,627.5, led by major decliners in YTLPOWR, IHH, GAMUDA, TENAGA, PBBANK, and YTL. Market breadth remained negative for a 3rd straight day (0.74 vs 0.51), while trading volume rose 5.5% to 3.67bn shares, with value at RM2.72bn. Foreign investors turned net sellers in Oct MTD (-RM301m) after a net inflow of RM76m in Sep, driven by four consecutive days of outflows totalling RM958m (- RM308m; YTD: -RM16.72bn). In contrast, local institutions (+RM281m; Oct MTD: +RM497m; YTD: +RM15.45bn) and retailers (+RM27m; Oct MTD: -RM196m; YTD: +RM1.27bn) emerged as net buyers.
The KLCI may consolidate in the near-term to digest its ~95 pts (+6.3%) rally since end June, as sentiment turns cautious ahead of Budget 2026 (Oct 10) and the Sabah state election (expected within 60 days following the Oct 6 dissolution) coupled with continued foreign net outflows. Nonetheless, HLIB is staying constructive into the seasonally stronger Q4 (10Y/20Y average returns: +2.0% / +2.4%).
HLIB raised its end-2025 KLCI target to 1,660 (from 1,640), based on a higher 14.6x PE, supported by projected earnings growth of +3.9% in 2025 and +6.3% in 2026. Strategy-wise the house reiterates a multi-pronged approach—accumulate high-beta names on dips (on Fed pivot hopes), while anchoring in:
(i) resilient big-caps aligned with EM rotation,
(ii) catalyst-driven stocks, and
(iii) domestic growth themes.
The Top Picks are CIMB, Tenaga, IHH, Gamuda, Sunway, 99Smart, AmBank, IOIPG, Dialog, ITMAX, AEON, SMRT, and FOCUSP.
