MARKET REVIEW

Global. Asian markets rose in early trades in line with a technical rebound on Dow mini as investors focused on Covid-19 vaccine developments and a better-than-expected China’s Aug trade data. However, most markets ended mixed amid worries of heightened geopolitical US-China tensions after Trump’s latest remarks on the possibility to blacklisting of China's largest chipmaker, SMIC, and entertained the idea of “decoupling from China” or refusing to do business with the world 2nd largest economy.

Overnight, Wall St sank for the 3rd consecutive sessions with a selloff in technology shares while oil stock slid as oil prices tumbled to 3 month low on growing demand concerns as Covid-19 continues to spread. Sentiment was also dampened by Trump’s statement of threatening to decouple the US economy from China. The Dow skidded 2.2% or 632 pts to 27500 (-7% from the all-time high of 29568) while the S&P 500 tumbled 2.8% or 95 pts at 3331 (-7.1% from the all-time high of 3588) The tech-heavy Nasdaq Composite also slumped 465 pts or 4.1%, to 10847 (-10.1% from the all-time high of 12074).

Malaysia. Ahead of the MPC meeting on 10 Sep and persistent profit-taking corrections in top glove makers amid concerns accelerated vaccine development may curtail demand, KLCI plunged as much as 25 pts to 1494 but last-minute support on selected banking, telco and utility stocks saw the index rising 2.9 pts to finish at 1519.3. Trading volume rose to 9bn shares valued at RM4.6bn compared with 7bn shares worth RM3.4bn on Monday. Market breadth was bearish with 309 gainers vs 867 losers.

Yesterday, local institutional investors (RM87m) and foreigners (RM11m) were the sellers whilst local retailers bought RM98m equities. YTD, foreigners net sold RM20.36bn shares compared with net purchases by local institutional funds (RM9.91bn) and retailers (RM10.45bn).

TECHNICAL OUTLOOK: KLCI

Despite holding above 1507 (200D SMA), KLCI is not out of the woods yet in this seasonally weak September outing (KLCI tumbled ~1.7% from 2000-2019), as the becnhmark is currently trapped in a downtrend channel after sinking 99 pts from the YTD peak of 1618 (28 July) to 1519 yesterday. Failure to hold at 1507 would signal that the index is ready to slip lower at 1494 and 1480 levels (30W SMA). On the contrary, only a decisive reclaim above key 1531 (10D SMA) and 1556 (downtrend channel) hurdles would give the bulls a big boost to retest 1564 (50D SMA), 1590 (100W SMA) and 1600 resistance levels.

Daily KLCI Chart: Still Trapped in the Downtrend Channel

MARKET OUTLOOK

There is no change to our short term view on Bursa Malaysia i.e. extended consolidation with major supports near 1507-1494-1476 zones, ahead of the MPC meeting on 10 Sep, domestic political uncertainty (with focus on the 26 Sep’s Sabah state election), a resurgence of Covid-19 cases in Malaysia and global hotspots (especially during the fall/winter), escalating US-China geopolitical tension and ongoing Wall St’s correction. If there is any residual strength from the current rebound, we expect the congested resistances 1556-1564 to keep a lid on the upside.

In wake of the concern of potential resurgence of Covid-19 cases in global hotspots (as we approach the fall/winter) and news that nine drugmakers working on coronavirus vaccines publicly pledged on Tuesday to prioritize safety and uphold rigorous scientific standards as concerns mount of political pressure to bring a vaccine to market before the 3 Nov U.S. presidential election, appetite on glove stocks may be revived as valuations become more palatable after recent selldown. HLIB top BUYs are TOPGLOV, HARTA and KOSSAN.

Source: Hong Leong Investment Bank Research - 9 Sept 2020