MARKET REVIEW

Global. Most Asian markets ended with modest gains as investors remained on the sidelines amid fears of a drawn-out election battle, which could dampen a swift resolution on a stimulus package to revive the economy. Overnight, the Dow rallied as much as 821 pts to 28301, led by technology and healthcare stocks as investors bet on the likelihood of a gridlock in Congress that would stunt chances for big reforms for these sectors or corporate tax hikes. Nevertheless, the early gains were reduced to 367 pts at 27847 as economically sensitive cyclical sectors (e.g. materials, industrials and banks) declined as investors fear of a contested election results hamper the ability of Washington to pass additional fiscal stimulus amid a jump in Covid-19 cases. This may even trigger a correction on Dow after rallying more than 1704 pts from a weekly low of 26143.

Malaysia. Ahead of the tabling of Budget 2021 on 6 Nov, KLCI jumped as much as 12 pts on a technical rebound to 1473 as Biden maintained a wide lead in the early US election results. However, the gains were pared off to 3.1 pts at 1464.6 amid worries of delayed election results would cloud the pandemic fight and stimulus as Trump staged a late comeback to reduce the majority. Market breadth was positive as 702 gainers outpaced 377 losers with a total 7.3bn shares with traded valued at RM3.4bn, driven by strong interests in ACE and small-to-mid cap companies.

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 154 pts at 1464 yesterday, below the Head & Shoulder (H&S) neckline at 1474 (10 Sep). Unless swiftly reclaiming above 1474 and 1490 (200D SMA) overhead resistances, KLCI is envisaged to engage in a downward consolidation with key supports near 1450, 1428 (20 Apr high) and 1413 (50% FR) levels. Only a successful reclaim above 1474-1490 barriers would enhance the odds for a further technical rebound towards 1501 (30D SMA), 1509 (50D SMA) and 1521 (23.6% FR) levels.

MARKET OUTLOOK

We expect extended volatility in our market amid uncertainties over the final US election results (although latest newsflows are putting Biden on the brink of winning the presidency), the surging local Covid-19 cases and more targeted lockdowns as well as the ongoing Nov reporting season.

Overall, if Biden wins the election, Wall St is likely to correct, especially counters that rose excessively, such as tech and healthcare stocks as an increase in taxes will affect consumer spending. On the contrary, a Trump victory could see Wall St gain further grounds as capital markets seem to better enjoy Trump’s policies of potential tax cuts for corporate income tax to spur listed firms’ earnings growth and individuals’ income tax to boost purchasing power, which would benefit all sectors. Key supports are pegged at 1450-1428-1413 whilst resistances are situated at 1474-1490-1501 levels.

Source: Hong Leong Investment Bank Research - 5 Nov 2020