MARKET REVIEW

Global. Asian markets were in listless trading ahead of the ‘quadruple witching” on Wall St last Friday and hesitations as to whether the US economy can sustain the current pace of recovery amid the lack of additional pandemic aids and the Fed standing put on stimulus. Meanwhile, Wall St ended lower for the 3rd day in a row ahead of the “quadruple witching” and worries over a resurgence in coronavirus cases in Europe and disappointment that central banks merely affirmed their monetary support last Thursday, without promising new stimulus. The Dow slipped 244pts at 27657 (-0.03% WoW) and the S&P 500 shed 37 pts to close at 3319 (-0.6% WoW) whilst the Nasdaq Composite tumbled 117 pts to close at 10793 (-0.6% WoW).

Malaysia. In anticipation of further wild swings on Wall St amid “quadruple witching” and portfolio rebalancing by institutional investors, KLCI fell 6.4 pts to record its 2nd straight losses (+2.1 pts WoW), led by selected selloff on the banking stocks (MAYBANK, PBBANK and HLBANK), TENAGA and SIMEPLT. Trading volume decreased by 0.6bn shares to 6.9bn shares worth RM5bn. Market breadth was positive with 629 gainers vs 441 losers.

Last Friday, local institutional (+RM61m) and retail (+RM2m) investors were the net buyers whilst foreign investors net sold RM63m in equities. YTD, local institutional and retail investors were the net buyers with RM9.45bn and RM11.31bn, respectively whilst foreign investors net sold RM20.76bn in equities.

TECHNICAL OUTLOOK: KLCI

Despite rebounding from a weekly low of 1474 (10 Sep low) to a high of 1541 (17 Sep), the weak bulls were unable to make further progress to break above the downtrend channel (situated near 1543), and persistent profit taking activities saw the index closing 6.4pts lower at 1506 (a tad above the 200D SMA of 1504). Further slide below 1500-1504 support will trigger another downleg to retest the lower downtrend channel near 1487 and 1474 (10 Sep low) levels. In summary, KLCI is still trapped in a downtrend channel, with key resistances set at 1521 (23.6% FR), 1529 (mid BB) and 1543 levels.

MARKET OUTLOOK

We continue to err on the side of caution in the short term on the back of the local uncertainties ahead of the Sabah polls on 26 Sep (PM already signalled that a victory will accelerate the GE15), liquidity dry up amid the expiry of 6M grace period for loan repayments (by end Sep), the review on Malaysia’s position in the World Government Bond Index (WGBI) by end Sep and the lingering concern over government’s major source of income following Petronas sluggish 1HFY20 results. Nevertheless, potential 3Q20 window dressing activities may cushion further slump with major supports pegged at 1500-1487- 1474 whilst key resistances fall on 1521-1529-1543.

On stocks selection, we believe pure plantation players (eg IJMPLNT, TSH, HSPLANT, FGV, SWKPLNT, KMLOONG, BPLANT, THPLANT etc) to benefit more from the recent surge in FCPO prices (+9.57% WoW) and 13.6% MoM) and could attract active trading interests in the near term. To recap, recent surge in FCPO was mainly driven by a confluence of positives such as playing catch-up with a rally in soybean prices due to robust demand from China (as major crops were destroyed by typhoons), renewed buying interests from India, a weak USD, expectations of the development of a La Niña climate pattern potentially leading to lower production etc.

Based on the monthly chart, FCPO could break the formidable LT neckline resistance near RM3200, supported by the bullsih indicators. A decisive breakout above this hurdle could spur prices higher at RM3400-3600 zones. Key supports are situated at RM2700-2900 levels.

Source: Hong Leong Investment Bank Research - 21 Sept 2020