MARKET REVIEW

Global. Following last week’s selloff, Asian markets made cautious gains on a technical rebound as investors cheered robust China and euro zone factory data, offseting worries of lockdowns in Europe to combat record Covid-19 cases and US election on 3 Nov. After sliding 1834 pts or 6.5% WoW, the Dow staged a 423-pt relief rally at 26925 amid bargain hunting on value stocks across sectors like energy, materials, and industrials as investors bet that a Joe Biden presidential victory (national polls suggest Biden maintained his strong lead over Trump) could kickstart the economy. Sentiment was also boosted by strong US, China and euro zone factory data, easing growing concerns about global growth in the face of a resurgent pandemic.

Malaysia. KLCI fell as much as 15 pts to 1452 before ending flat at 1466.5, as sentiment remained cautious amid growing fears of a global and local economic slowdown due to a resurgence in Covid-19 cases, and ahead of the widely focused BNM meeting (3 Nov), US election (4 Nov) and tabling of Budget 2021 (6 Nov). Market breadth was negative as 688 losers edged 365 gainers with a total 5.9bn shares traded valued at RM3.3bn. Foreign investors net sold RM104m in equities for the 3rd straight sessions whilst local institutional investors and retailers net bought RM249 and RM1.4m shares, respectively.

TECHNICAL OUTLOOK: KLCI

On the back of heightened external and domestic headwinds, KLCI plunged as much as 166 pts from a YTD high of 1618 (29 July) to a low of 1452 before narrowing the losses to 152 pts or 9.4% at 1466 yesterday, a tad below the bearish Head & Shoulder (H&S) neckline at 1474 (10 Sep). Unless swiftly reclaiming above 1474 and 1491 (200D SMA) overhead resistances, KLCI is still tilted to the downside to retest 1450, 1428 (20 Apr high) and 1413 (50% FR) levels. Conversely, a successful reclaim above 1474 -1491 levels would enhance the odds for a further technical rebound towards 1504 (mid BB) and 1521 (23.6% FR) levels.

MARKET OUTLOOK

Despite a welcome KLCI technical rebound to pare early losses by to end flat yesterday, there is no change to our short term consolidation view. We continue to expect further volatility this week ahead of the BNM meeting (3 Nov), US election (4 Nov) and tabling of Budget 2021 (6 Nov) as well as the technically bearish Head & Shoulder (H&S) pattern. Key supports are 1450-1428-1413 whilst resistances are situated at 1474-1491-1504 levels. On stock selection, HLIB Institutional Research has a BUY rating on Tenaga with TP RM12.50 (+30% upside). We believe values re-emerge after tumbling 21.6% YTD despite facing potential selling pressures from foreigners (~14%) amid domestic headwinds. Overall, we like Tenaga for its relative earnings stability and is a proxy to Malaysia’s economic recovery in FY21F coupled with a recurring dividend yield of 5 -6%. Tenaga is currently trading at an undemanding FY21F PE of 11.3x (vs 10Y historical mean 30x) and 1x P/B (29% lower than 10Y mean 1.4x).

Technically, Tenaga is steeply oversold (based on daily, weekly and monthly charts) after plunging 25% from YTD high of RM12.83. We expect limited downside risks with key supports at RM9.10-9.30 zones. A decisive breakout above RM9.90 (10D SMA) to RM10.20 (30D SMA) overhead resistances will spur prices towards our LT objective of RM10.86 (100D SMA). Cut loss at RM9.05.

Source: Hong Leong Investment Bank Research - 3 Nov 2020