HLBank Research Highlights

Author: HLInvest   |   Latest post: Tue, 27 Jul 2021, 9:28 AM


Traders Brief - Downside risks resurface amid multiple headwinds

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Global. Asian markets ended mixed last Friday (MSCI Asia Ex-Japan -0.12% to 695.6; - 1.15% WoW) after Powell’s confirmation that officials are starting to discuss trimming bond purchases came alongside the Fed’s upward revisions to its outlook for inflation and interest rates. Coinciding with the quarterly “quadruple witching” last Friday (options and futures on indexes and equities expire on the same day), the Dow plunged 533 pts or 1.6% to 33290 (-3.5% WoW), recording its 5th straight loss after Fed signalled the end of peak dovishness, raising its expectations for inflation and start to roll back stimulus earlier than expected. Sentiment was also spooked by Bullard’s comment (a non-voting Fed member in 2021) that the 1st rate hike would be by end 2022, earlier than the Fed’s current projections in 2023.

Malaysia. After falling 11.6 pts in three days, KLCI ended 18.2 pts higher to 1589.1 at the eleventh hour amid bargain hunting on selected heavyweights i.e. TENAGA, SIMPLT, IHH, PMETAL, AXIATA and MISC, ahead of the FTSE KLCI rebalancing exercises. Sentiment improved further as the G/L ratio jumped to 1.23 from 0.59 on Thursday. Overall, trading activity on the local bourse was higher last week with a daily value of RM3.6bn compared with RM3.3bn previously. In terms of fund flows, local retail investors were the major net buyers last week with RM227m (vs +RM318m in the previous week), followed by foreigners RM76m (vs –RM427m previously) while domestic institutions emerged as the major net sellers with net outflows of RM303m (vs +RM109m previously).


KLCI seesawed between 1565.7 and 1589.1 last week before settling at the peak of 1589.1, translating to a 13.9-pt weekly gain. Although last Friday’s bullish engulfing candlestick and a strong reclaim above 200D SMA (or 1577) bode well for the index in the short term, the upside is likely to be capped near the 1600 psychological (or downtrend line/DTL) and 1610 resistances on the back of the hawkish Fed, elevated Covid-19 cases and domestic fluid politics. Reiterate sideways consolidation going forward until the crucial DTL is terminated. Conversely, key supports are situated at 1577-1565-1552 zones. A decisive breakdown below 1552 (YTD low) may send the index lower towards 1545 (61.8% FR) and 1533 (20M SMA) levels.


In the short term, KLCI will continue to trend sideways with a slight negative bias, in the midst of a hawkish Fed, elevated Covid-19 cases nationwide, the impact of the FMCO extension to the economy and corporate earnings, and domestic fluid politics. Nevertheless, we still believe the downside risk is likely to be cushioned near 1545-1552 zones, as the structured National Recovery Plan (NRP) with objective thresholds should help control the Covid-19 pandemic in a more sustainable matter, particularly the acceleration of the nationwide vaccination programme with full vaccination rates to 40% target by Sep/Oct and 60% by Nov/Dec.

In wake of the prevailing risk-off sentiment and Fed hawkish policy stance, the appetite on dollar assets has strengthened, reflected by the 1.82% rise in USD index WoW to 92.2. Meanwhile, RM has also weakened 0.75% WoW to RM4.14/USD. Technically, RM is likely to head towards RM4.16-4.18 zones following the double bottom patterns. A successful breakout above these hurdles will witness RM weaken further at RM4.20 -4.22 territory. Given the potential weakness in RM undertone in the near term, we reckon that export oriented plays or strong USD beneficiaries could return. We see good trading opportunities on FRONTKN, UCHI, INARI, UWC, VS, HOMERIZ, EVERGRN, TOPGLOV, DAYANG, MISC, and ARMADA.


In the wake of the market uncertainty, we decided to square off PESTECH (6.5% loss) last Friday due to the expiry of our recommended trading duration of 4 weeks.


Source: Hong Leong Investment Bank Research - 21 Jun 2021

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