MARKET REVIEW

Global. On the back of Wall St’s rally last Friday, Asian markets ended higher, driven by the strength of technology and pharmaceutical stocks on hopes for a potential COVID-19 treatment after the US FDA approved of the use of blood plasma from recovered patients as a COVID-19 treatment. However, the WHO expressed skepticism about the treatment due to "low quality" data.

Overnight, the Dow surged 378 pts or 1.35% to 28308 whilst the S&P 500 (+1% to 34731) and Nasdaq (+0.6% to 11379) also reached record closings after the Trump administration is considering fast-tracking an experimental COVID-19 vaccine being developed by AstraZeneca and Oxford University in hopes it could be deployed in the US before Americans head to the polls in November. Sentiment was also boosted by the FDA’s authorisation of convalescent plasma for hospitalized Covid-19 patients and declining new coronavirus cases after spiking to more than 64,000 cases earlier this month.

Malaysia. Bucking higher regional markets. KLCI lost 8.5 pts to 1568.6 after rising 12.5 pts WoW, mainly dragged glove stocks (on vaccines development news), Petronas Chemicals (profit-taking amid rich valuations) and banking stocks (to contend with the risk of delayed deterioration in asset quality and the advent of a second wave infection). Trading volume increased to 9.95bn shares worth RM5.77bn as compared to last Friday’s 7.73bn shares valued at RM5.02bn amid the revival of trading momentum in small caps, ACE Market and lower liners in the healthcare and PPE related sectors after last few days of consolidation. Market breadth was positive with 645 gainers as compared to 504 losers.

Yesterday, foreign (-RM121m) and local institutional investors (-RM26m) were the net sellers whilst local retailers (+RM147m) were the main pillars of buying force on Bursa Malaysia. YTD, foreigners net sold RM19.9bn shares compared with net purchases by local institutional funds (RM9.7bn) and retailers (RM10.2bn).

TECHNICAL OUTLOOK: KLCI

From a 7M peak of 1618 (28 July), KLCI plunged as much as 79 pts to 1539 (12 Aug low) before consolidating higher to end at 1568.6 yesterday. We reiterate that as long as KLCI can close above 1560 (50D SMA), chances for the benchmark to recover further towards 1584 (30D SMA), 1591 (9 June high) and 1600 remain bright. Conversely, failure to hold at 1560 will attract more downward consolidation to lower supports at 1539 and 1510 (200D SMA) levels.

MARKET OUTLOOK

The overnight rally on Wall St could provide a positive spillover to local sentiment today particularly on the technology and healthcare-related companies (but mildly negative for index-linked Top Glove and Hartalega due to positive vaccine development progresses). Nevertheless, KLCI is still likely to remain range-bound with key supports at 1550-1560 whilst resistance falls on 1591-1600 as we enter the peak of the August reporting season. Moreover, nagging domestic political uncertainty, the resurgence of Covid-19 cases in global hotspots, and the discovery of a highly infectious D614G virus coupled with simmering US-China geopolitical tension may continue to cap further rally on KLCI.

CLOSED VIRTUAL PORTFOLIO POSITION – FIG 1

In the wake of the market uncertainty, we took profit on TSH (8.1% gain) and UWC (27.8% gain) yesterday

Source: Hong Leong Investment Bank Research - 25 Aug 2020