MARKET REVIEW

Global. Asian markets eased on profit-taking from a strong start in 2021 last week as caution over rising coronavirus cases and new Covid-19 strain registered in Japan coupled with elevated US-10Y Treasury yield in a year dampened sentiment on high growth stocks. After a record-breaking close on 8 Jan, the Dow fell 89 pts to 31008 amid worries of equities’ rich valuations despite the onslaught of Covid-19 and rising political tensions after lawmakers stepped up efforts to remove Trump from office. Sentiment was also dampened by surging US 10Y treasury yield to one year high at 1.14%, which could signal higher inflation down the road (next Fed meeting falls on 26-27 Jan).

Malaysia. After rallying 30 pts WoW, KLCI slipped 15.9pts on strong profit taking pullbacks in glove stocks and wild speculations of the re-introduction of MCO national lockdown in March 2020 (ahead of the PM briefing at 6pm) following the resurgence in daily local Covid19 transmissions to record highs. Market breadth was bearish as losers thumped gainers by 650-490 (recorded its 7th consecutive negative A/D ratio) with a total of 6.5bn securities were traded for RM5.6bn.

TECHNICAL OUTLOOK: KLCI

The disappointing close yesterday (-15.9 pts at 1617.2) amid a pullback in glove stocks and fear of a re-imposition of the MCO ahead of the PM’s annoncement after market close could suggest that the bears have not given up just yet and a further retracement below 1590-1600 supports may trigger more selloff to revisit 1573 (50% FR) and 1545 (61.8% FR) levels. For a resumption of an upward momentum, the index must reclaim strongly above 30D SMA near 1632 to advance further towards 1638 (23.6% FR), 1650 and 1667 (200W SMA) levels.

MARKET OUTLOOK

We believe the market would stabilise and move sideways (supports 1573-1600) in the short term to digest a more relaxed version of MCO 2.0 measures compared with the MCO 1.0 in March last year. Technically, only a strong reclaim above 1632 (30D SMA) will lift KLCI out of current consolidation mode to advance higher to 1650-1667 zones. While the overall 2021 recovery thesis remains intact, opposing news flow between vaccine rollouts and a still rising Covid count and the introduction of MCO 2.0 will bring about much volatility along this path, perhaps also exacerbated by fluid politics and RSS reintroduction. Our top picks have a recovery bias (Tenaga, RHB, DRB, MBM and FocusP), combined with volatility (Bursa), defensives (TM, MQREIT), value (IJM, Sunway, Armada) and sold down pandemic beneficiaries (Top Glove).

VIRTUAL PORTFOLIO POSITION-FIG1

In the wake of the market volatility, we decided to take profit on TEKSENG yesterday after hitting R2 target at RM0.76 (15.3% gain).

Source: Hong Leong Investment Bank Research - 12 Jan 2021