MARKET REVIEW

Global: Led by heavy losses in Kospi (-4.76%), NIKKEI (-3.47%) and Thailand (-3.32%), Asian markets were in a sea of red on concerns over a resurgence of Covid-19 outbreaks in Latin American and parts of the US, South Korea, China and Japan, further dampening optimism of a V-shaped economic recovery. The Dow plunged as much as 762 pts at 24483 in early trades amid a spike in new deadly Covid-19 cases in the US and parts of the world. However, the index staged a remarkable 920-pt comeback to end 157 pts higher at 25763 as Fed said it would expand the scope of corporate and individual bonds’ buying from the primary and secondary markets.

Malaysia. Tracking sliding regional markets and Brent oil prices coupled with domestic uncertainties due to potential snap election in 2H20 and lifting of short-selling ban post 30 June, KLCI plunged 47.2 pts or 3.05% to 1498.8 after hovering within an intra-day high of 1548.1 and a low of 1490.4. Trading volume increased to 9.07bn shares worth RM5.32bn as compared to Friday’s 8.03bn shares valued at RM4.77bn. Market breadth was negative with 159 gainers as compared to 1107 losers.

TECHNICAL OUTLOOK: KLCI

Technical outlook has tuned increasingly bearish following a 47-pt carnage yesterday, violating the major 200D SMA (at 1516) and 1500 psychological supports. Tracking overnight Dow’s superb comeback from steep losses, KLCI is likely to stage a technical rebound to reclaim above the crucial 1500-1516 (support-turned-resistance) levels, before revisiting the 1540 (LT downtrend hurdle). Overall, KLCI must swiftly recapture above 1500- 1516 hurdles in the near term to repair the damage done yesterday. Failure to do so would inflict more selldown, potentially pressuring the KLCI to lower supports at 1473 (uptrend line from 1208) and 1452 (30D SMA) zones.

MARKET OUTLOOK

After a 47-pt rout yesterday, KLCI is likely to stage a technical rebound today to reclaim the crucial 1500-1516 zones before revisiting the LT downtrend resistance at 1540, taking cue from a remarkable comeback by Dow overnight. Nevertheless, domestic uncertainties due to potential snap election in 2H20 and lifting of short-selling ban post 30 June may dampen sentiment and cap further rebound towards a formidable 1580-1600 territory.

In wake of ongoing uncertainty, we advocate investors to stay prudent and accumulate companies backed by solid earnings and/or balance sheet. HLIB top BUYs are TENAGA, TOPGLOVE, RHB, TM, GENTING, SUNWAY and BURSA. Meanwhile, despite their rich valuations, trading interests on glove makers (eg TOPGLOVE, HARTA, SUPERMAX, KOSSAN, RUBEREX, COMFORT and CAREPLUS) may not fade away anytime soon until an effective cure or vaccine is found amid the resurgence in Covid-19 cases.

Source: Hong Leong Investment Bank Research - 16 Jun 2020