MARKET REVIEW

Global: Asian markets ended higher, taking cues from a technology-fueled rally amid overnight fresh record high on Nasdaq and a slew of positive news on the coronavirus vaccine front coupled with a pivotal EUR750bn European Union’s stimulus plan to revive the coronavirus-hit economies.

Tracking higher European markets following the approval of an E$750bn Covid-19 rescue funds, the Dow surged as much as 345 pts to 27025 amid optimism around a potential vaccine and further economic stimulus amounting to USD1.0-1.5 trillion. However, profit taking pared the gains to 159 pts at 26840 as investors shifted to the cyclical sectors and booked profits in growth/momentum stocks coupled with potential disappointment that the stimulus bill would be rolled out by end July when the US$600/week federal unemployment insurance benefit is set to expire.

Malaysia. Tracking higher regional markets and active buying interests in banking and glove stocks, KLCI rose 6.5 pts after gyrated within 14 pts between an intra-day high of 1601.8 and a low of 1587.9. Trading volume decreased to 9.34bn shares valued at RM5.39bn as compared to Monday’s 12.5bn shares worth RM6.64bn. Market breadth was positive with 634 gainers as compared to 428 losers.

TECHNICAL OUTLOOK: KLCI

After hitting a low of 1476 (29 June), KLCI staged a 141-pt relief rally to a 6M high at 1617 (14 July) before retreating lower again to 1596 (+32% from Covid-19 bottom of 1208) yesterday. Overall, current consolidation mode would prevail and is healthy to neutralize overbought technical momentum for a more sustained uptrend going forward. Key resistances are near 1600 and 1617 and a decisive close above the 1617 would open the door for higher targets at 1635 (upper BB) and 1679 (200W SMA) zones. Key support falls at 1563 (17 July low) and breaking below this level would trigger more selldown towards 1545 (30D SMA) and 1525 (50W SMA) territory.

MARKET OUTLOOK

We are mindful of downside risks to domestic economy and corporate earnings amid soaring fears of 2nd wave infections (could worsen if a vaccine is not found before the winter), domestic banking sector asset quality, fiscal spending and debt constraints, re escalation of US China tension, coupled with lingering political uncertainty. Moreover, with Top Glove and Hartalega collectively contributing about 12% of the FBMKLCI’s market capitalisation as at yesterday, volatility in their share prices will continue to influence KLCI short term performance. Overall, current market consolidation mode would prevail and is healthy to neutralize overbought technical momentum for a more sustained uptrend going forward. Key resistances are near 1600, 1617 and 1635 (upper BB) whilst supports fall at 1563 (17 July low), 1545 (30D SMA) and 1525 (50W SMA) levels.

On a seprate note, our sector analyst viewed the breach of SOP during MCO will minimally affect Top Glove (penalty c. RM1k) and supported by an recent achievement of “A” rating during a social audit by Amfori (leading global business association for open and sustainable trade). Hence, any pullback in Top Glove (HLIB Research-Buy-TP RM31.31) share price is a good opportunity to accumulate. Key resistances are RM28.00-RM29.30- RM30.30 whilst supports fall on RM22.60-RM21.60-19.60. Cut loss at RM19.20.

Source: Hong Leong Investment Bank Research - 22 Jul 2020