MARKET REVIEW

Global. Taking a cue from the overnight slump on Wall St, Asian markets ended mixed amid surging Covid-19 cases globally and fading hopes on a timely US stimulus deal before the 3 Nov election, stoking fears of prolonged global economic woes. Nevertheless, further downside was cushioned by strong Sep growth in China’s industrial firms' profit and a record-breaking IPO by Ant Group as the fintech company will issue 1.67bn new shares at HK$80/piece to raise HK$133.6bn while selling the same amount of shares in Shanghai at 68.8 yuan/piece to raise 114.9bn yuan.

Overnight, the Dow fell 222 pts at 27463 as sentiment sagged amid rising Covid -19 cases and little hope for a US coronavirus stimulus before the 3 Nov election coupled with concerned about the possibility of a contested election outcome (which could trigger an extended period of volatility). However, the Nasdaq composite soared 72 pts to 11431 in anticipation of strong results from Microsoft, Apple, Amazon, Alphabet and Facebook this week.

Malaysia. Despite overnight rout on Dow, KLCI rose 5.7 pts to 1500.4 as political tensions reduced after UMNO’s supreme council pledged to support PM after Agong rejected an emergency ruling in Malaysia over the weekend. Yesterday, foreign investors continued its net buying for a 2nd straight day (+RM119m) whilst local institutional investors and retailers net sold RM82m and RM37m in equities, respectively.

TECHNICAL OUTLOOK: KLCI

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 1519 (50D SMA) and 1509 (uptrend line from 1474) supports to a low of 1482 (26 Oct low) before closing at 1500 yesterday. Overall, failure to defend key supports at 1494 (200D SMA) and 1482 could reignite 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 1509 and 1521 levels. Crossing these barriers will lift the index higher towards 1541 (17 Sep high) and 1564 (90W SMA) levels next.

MARKET OUTLOOK

In the short term, we expect KLCI to be stuck in a tug-of-war between the bulls and bears ahead of the key US presidential election (3 Nov) and the Budget 2021 presentation (6 Nov) coupled with ongoing Nov reporting season. Moreover, 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 the risks to 2H20 economic and corporate earnings recovery. This week, KLCI may continue to recover from last Friday’s low of 1482 but upside is likely to be capped near 1509 (uptrend line support from 1474) and 1521 (23.6% FR) while supports are pegged at 1482-1474-1461 levels.

Stocks wise, we see a good bargain hunting opportunity on MBMR (RM2.63, BUY- TP RM5.00) after recent selloff (-31.9% YTD). Trading only at 4.9x FY21E P/E (48% below 10Y mean 9.5x) with a strong netcash of RM42.7sen and 7.6% FY21E DY, MBMR is in a good position to leverage on the implementation of SST as we expect pent-up deliveries by year end. Major earnings contributor, Perodua is increasing production rate to 25k units per month (from usual 20k units) for the period of Aug to Dec months to cater for the strong demand.

MBMR is steeply oversold and we see good entry levels near RM2.45-2.60 zones. A decisive breakout above RM2.81 (10D SMA) is likely to spur share prices higher towards RM3.00 (30D SMA) and RM3.20 (38.2% FR) territory. Key supports are pegged at 2.50- 2.45. Cut loss at RM2.40.

Source: Hong Leong Investment Bank Research - 28 Oct 2020