MARKET REVIEW

Global. Most Asian markets started the week on a sluggish note as surging Covid -19 cases worldwide and a stalemate in Washington over the coronavirus stimulus aid darkened the global economic outlook and sapped risk appetite. Overnight, the Dow plunged as much as 965 pts to 27370 before paring the losses to 650 pts at 27685, as investors were unnerved by fears about Covid-19 resurgence and the continued deadlock in reaching a fiscal policy package coupled with heightened uncertainty over the 3 Nov election outcome.

Malaysia. KLCI tumbled as much as 12.5 pts to 1482.1 as sentiment was dampened by lingering worries of Malaysia’s economic impact amid spiking Covid-19 cases and clusters coupled with uncertainties ahead of the US presidential election (3 Nov) and the Budget 2021 presentation (6 Nov). However, KLCI pared early losses to end flat at 1494.6 on bargain hunting activities following Agong’s rejection of an emergency ruling in Malaysia and warning to MPs to stop any form of politicking that will disrupt the stability of the ruling government. Market breadth was bearish with 256 gainers vs 790 losers, as small-cap and ACE stocks witnessed strong selling forces amid sliding ACE (-3.6%) and Small Cap (- 1.3%) indices.

TECHNICAL OUTLOOK: KLCI

In the short term, KLCI may continue to engage in a tug-of-war between the bulls and bears. Since rebounding to a high of 1541 (10 Sep ) from 1474 (10 Sep low), the bulls had failed to keep the momentum going as the index fell below 1521 (50D SMA) and 1507 (uptrend line from 1474) supports to a low of 1482 (26 Oct low) before closing at 1494 (or 200D SMA) yesterday. Overall, violating major supports at 1482-1494 levels would reignite further risk-off mode, potentially pushing the index lower towards 1474 (10 Sep low), 1461 (50% FR) and 1450 levels. On the upside, stiff overhead resistances are situated at 1507 and 1521 levels. Crossing these barriers will lift the index higher towards 1541 (17 Sep high) and 1564 (90W SMA) levels next.

MARKET OUTLOOK

Following Agong’s rejection of emergency ruling in Malaysia and UMNO’s supreme council decision to continue to support PN government, KLCI may stage a mild rebound today with upside capped near 1507 (uptrend line support from 1474) and 1521 (23.6% FR) while supports are pegged at 1482-1474-1461 levels. Nevertheless, the benchmark index is likely to be stuck in a tug-of-war between the bulls and bears ahead of the US presidential election (3 Nov) and the Budget 2021 presentation (6 Nov) coupled with an exponential surge of coronavirus cases worldwide as the winter season begins in the Northern Hemisphere. In Malaysia, the CMCO extensions in Selangor, KL & Putrajaya for another two weeks till 9 Nov 2020 (contributed over 41% to national GDP) amid spiking Covid-19 local transmissions and clusters underline risks to 2H20 economic and corporate earnings recovery. Stocks wise, we believe technology and healthcare-related stocks are deemed to benefit from a prolonged virus pandemic. HLIB’s institutional research top picks are TOPGLOV (TP RM13.00), HARTA (TP RM24.10), KOSSAN (TP RM9.15), MAHSING (TP RM1.41), PHARMA (TP RM5.94), FRONTKN (TP RM4.10), INARI (TP RM3.28), UNISEM (TP RM5.21), POS (TP RM1.20), VS (TP RM2.92) and UWC (TP RM8.88).

Source: Hong Leong Investment Bank Research - 27 Oct 2020