MARKET REVIEW

Global. Asian markets were mostly in the red as escalating COVID-19 cases raised fears that a new round of business restrictions and lockdowns would threaten a nascent recovery. Sentiment was also dampened by media reports saying several global banks moved sums of allegedly illicit funds over nearly two decades and increased military tensions between the US-China as some Washington officials visited Taiwan last week.

Overnight, the Dow plunged 509 pts (off low of -943 pts) to 27147 amid concerns about new lockdowns in Europe and possible delays in fresh stimulus from Congress (negotiations could become more complicated following the death of the US Supreme Court Justice Ginsberg) triggered risks of a prolonged US economic recovery. Sentiment was also rattled by a selloff in financials after several global banks were involved in money laundering allegations in the last two decades.

Malaysia. Tracking sluggish regional markets, bearish opening of the Europe an markets and lingering domestic headwinds, KLCI lost 7.2 pts at 1499.4. Meanwhile, small to mid cap and ACE companies faced more severe selling pressures as the FBM Mid70, FBMSCAP and FBMACE tumbled 1%, 2.1% and 1%, respectively. Trading volume increased to 7.03bn shares worth RM3.55bn as compared to Friday’s 6.87bn shares worth RM5.07bn. Market breadth was bearish with 275 gainers as compared to 873 losers.

Yesterday, local retailers (RM-2m) and foreign investors (RM-256m) were the major sellers whilst local institutional investors were the sole buyers of RM258m in equities. YTD, local institutional and retail investors were the net buyers with RM9.7bn and RM11.3bn, respectively whilst foreign investors net sold RM21bn 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 1540), and fierce profit taking pullback saw the index closing below 1500 levels again at 1499 (below the key 200D SMA at 1504). Given the overnight slump on Wall St and domestic headwinds, KLCI may experience more downside risks in the coming days to retest the lower downtrend channel near 1484 and 1474 (10 Sep low) levels. Stiff resistances are situated at 1503, 1521 (23.6% FR) and 1540 levels.

MARKET OUTLOOK

Taking cues from the bearish sentiment on Wall St and European markets, we continue to err on the side of caution in the short term amid lingering domestic headwinds such 1) Sabah polls on 26 Sep (PM already hinted that a victory will accelerate the GE15), 2) liquidity dry-up amid the expiry of 6M grace period for loan repayments (by end Sep), 3) review on Malaysia’s position in the World Government Bond Index (WGBI) on 24 Sep (a potential exclusion may dampen further the fragile market sentiment amid trigger selldown in the bond market and weaken the RM), and 4) 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 1484- 1474-1461 whilst key resistances are situated at 1504-1521-1540 territory.

On stocks selection, given the rapid rise in Covid-19 cases in Europe (WHO already warned last week that there was a “very serious situation” unfolding in the region towards the fall/winter season), appetite on glove stocks could be revived as lofty valuations came back to earth after recent selldown. HLIB’s current BUY ratings are TOPGLOV (TP RM13.00, 9.8x FY8/21 P/E), HARTA (TP RM24.10, 23.8x FY3/21 P/E) and KOSSAN (TP RM18.30, 16.3x FY12/21 P/E).

VIRTUAL PORTFOLIO - FIG1

In the wake of the market uncertainty, we took profit on DNONCE (6.8% gain) yesterday.

Source: Hong Leong Investment Bank Research - 22 Sept 2020