MARKET REVIEW

Global. Tracking overnight slump on Wall St, Asian markets ended mixed as investors weighed on the US stimulus package tussles. Sentiment was also cautious amid the surging Covid-19 cases in the US and Europe ahead of the flu and winter seasons, raising the possibility of further restrictions and stoked fears of an onerous global economic recovery. Following a 411-pt slump in the previous session, the Dow rebounded 113 pts at 28308 after Pelosi signaled progress in negotiations and hoped a coronavirus aid agreement could be accomplished by the end of this week. Sentiment was also supported by news that Moderna’s coronavirus vaccine could be available for emergency use in December if it gets positive results from its interim trial in November.

Malaysia. Tracking a 411-pt slide on Dow overnight, KLCI surrendered about half of the previous day’s gain to end 7.1 pts lower at 1511 on profit-taking. However, trade volume rallied past 11bn shares (against a 7D average of 7.15bn) on active buying interests in lower liners and ACE counters, focusing on the gloves and PPE-related stocks amid a resurgence in Covid-19 infections globally. Yesterday, local retailers were the major buyers (RM181m) whilst foreign and local institutional investors net sold RM135m and RM46n equities, respectively.

TECHNICAL OUTLOOK: KLCI

In the short term, we expect KLCI to engage in an extended sideways consolidation mode unless successfully reclaiming above 1526 (50D SMA) overhead resistance. Crossing this barrier will lift the index higher towards 1546 (50% FR) and 1564 (61.8% FR) levels next. On the contrary, a sharp retreat below the 1497 supports (200D SMA and downtrend line from YTD high of 1618) could reignite a risk-off mode, potentially pushing the index lower towards 1490 (lower BB), 1474 (10 Sep low) and 1461 (50% FR) levels.

MARKET OUTLOOK

Despite closing above the critical 200D SMA support (now at 1497) and the major support trendline from 1474 low, KLCI is still engaged in a tug-a-war between the bulls and bears amid rising headwinds ahead of the US presidential election and a resurgence in Covid-19 infections globally. Moreover, more targeted lockdowns amid spiking Covid-19 local transmissions in Malaysia may dampen our expectations for a 2H20 economic and corporate earnings recovery.

Stock wise, after plunging 23% YTD, we believe MISC (HOLD - TP RM7.69), a defensive play among bluechip counters with attractive yields, is worth a 2nd look as valuations become undemanding at 0.83x P/B (-25% below 10Y 1.1x) and 15.4x FY21 P/E (-9.4% below 10Y 17x), supported by attractive 4.7% FY21E DY and strong parentage support from Petronas (with a 57.6% stake). Despite experiencing lower rates of late, we believe MISC would be able to weather through the fluctuations in charter rates for its LNG and Petroleum segment, given that its long term charter contracts for the LNG and Petroleum business would still be able to provide the company with sustainable earnings and cushion the current down-cycle in the oil & gas industry.

After its recent slump in share prices, MISC is steeply oversold and we see good entry levels near RM6.16-6.30 zones as values re-emerge after recent rout. A decisive breakout above RM6.76 (10D SMA) is likely to spur share prices higher towards RM7.00-7.30 territory. Key supports are pegged at 6.30-6.16. Cut loss at 6.10.

Source: Hong Leong Investment Bank Research - 21 Oct 2020