MARKET REVIEW

Global. Tracking a sharp fall in US markets, Asian markets ended lower amid fear that surging Covid-19 cases and an unresolved deadlock in the US Congress over more fiscal stimulus would further aggravate a nascent global economy. Sentiment was also dampened by geopolitical tension in the Korean peninsular following reports that North Korea had killed a missing official from the South earlier this week.

Overnight, the Dow rebounded as much as 331 pts following news that a strong US Aug new home sales outweighed an unexpected rise in weekly jobless claims, as well as optimism that news of efforts to enact further stimulus in Washington by the end Sep as the Democrats are working on a USD2.2 trillion coronavirus stimulus package. However, looming political uncertainty over the 3 Nov presidential election and fears of a Covid-19 resurgence in the fall reduced the gains to a mere 52 pts at 26815.

Malaysia. Despite losses on regional markets and Wall St overnight, KLCI inched up 4.3 pts on technical rebound to 1500.8, underpinned by the strong recovery in rubber glove companies. Nevertheless, overall sentiment remained cautious amid heightened local political uncertainty ahead of the Sabah polls on 26 Sep and Anwar’s claims to have 'formidable and convincing' support to form a new government on 23 Sep, reflected by a 30% decline in trading volume to 5.9bn shares worth RM4.6bn. Market breadth was negative with 451 gainers as compared to 578 losers.

Yesterday, local retailers were the main sellers with RM111m whilst foreign investors and local institutional investors net bought RM42m and RM69m in equities, respectively. YTD, local institutional and retail investors were the major buyers with RM9.9bn and RM11.1bn, respectively whilst foreign investors net sold RM21bn in equities.

TECHNICAL OUTLOOK: KLCI

After rebounding from a low of 1474 (10 Sep) to a high of 1541 (17 Sep), the weak bulls were unable to make further progress to break above the downtrend channel, with aggressive profit taking pushed down the KLCI to a low of 1491 (23 Sep) before staging a mild rebound to end at 1500.8 yesterday (a tad below the key 200D SMA at 1502). Given the looming domestic political headwinds and negative Wall St outlook, KLCI may experience more choppy days ahead with key supports at 1485 (lower BB), 1470 (lower downtrend channel) and 1461 (38.2% FR). Stiff resistances are situated at 1515 (mid BB) and 1521 (23.6% FR) and 1530 (upper downtrend channel) levels.

MARKET OUTLOOK

We continue to err on the side of caution given the negative sentiment on Wall St and nagging domestic headwinds such as 1) heightened local political uncertainty, 2) further liquidity squeeze on stock market amid the expiry of 6M grace period for loan repayments by end Sep, 3) concern over government’s major source of income following Petronas sluggish 1HFY20 results, and 4) rising new Covid-19 cases and clusters in Malaysia. Nevertheless, potential 3Q20 window dressing activities in the next few days and news that Malaysian bonds will remain on the watchlist (not a downgrade) in the FTSE global bond benchmark coupled with the announcement of a RM10bn Kita Prihatin package (timely to cushion the fallout of the tepid economy) may cushion near term KLCI downside risks. Major supports are pegged at 1485-1470-1461 whilst key resistances are situated at 1515- 1521-1530 zones.

Source: Hong Leong Investment Bank Research - 25 Sept 2020