MARKET REVIEW

Global. Asian markets recovered from last week’s fall, led by rallies in SENSEX (5%), KOSPI (2.7%), and HSI (2.2%) following a rebound in Dow futures amid easing pressures on a short squeeze by hedge funds. Sentiment was also boosted by India’s huge stimulus measures to kickstart the pandemic-hit economy and continued growth in Jan trade data and factory activities in Asian regions. After plunging 1014 pts or 3.2% WoW, the Dow made a positive debut in Feb as the index rose 229 pts at 30212, led by gains in technology shares (ahead of Amazon, Alphabet, Microsoft, Apple and Facebook results this week), while mining shares rose as the retail trading frenzy shifted to silver. Overall, 37% of the companies in the S&P 500 have reported 4Q20 results, with about 82% reporting EPS above estimates and above the 5Y average of 74%.

Malaysia. Despite a long-awaited 5.3pts technical rebound on 27 Jan after plunging 61.4 pts from 14-26 Jan, KLCI slipped 14.2 pts further on 29 Jan to 1566.4 (Thaipusam holiday 28 Jan) as sentiment turned cautious ahead of the long weekend holidays (Federal Territory Day on 1 Feb) and cautious regional markets’ trend coupled with the possibility of the current lockdown being extended beyond 4 Feb. About 6.5bn (5.6bn previously) securities were traded for RM6.4bn (RM5.0bn previously) whilst market breadth was negative as losers led gainers by 869 to 367.

TECHNICAL OUTLOOK: KLCI

KLCI fell 14.2 pts last Friday to 1566.4, ending -30.3 pts WoW and -60.8 pts MoM. Despite its oversold position, KLCI is expected to drift lower before staging a technical rebound following recent multiple major SMAs and 1600 supports’ breakdowns. A decisive fall below 1563 (the Head & Shoulder neckline support) would trigger a deeper slide towards 1534 (200D SMA) and 1500 psychological levels, with an eventual H&S target at 1430 zones. On the flip side, only a successful reclaim above the 1600-1618 congested resistances would arrest the downtrend to reignite a freshb relief rebound towards 1643-1665 upside targets.

MARKET OUTLOOK

On the back of the alarming surge in domestic Covid-19 infections and the start of the Feb reporting season, KLCI is expected to continue its consolidation mode today, as investors await the details of MCO 2.0 (expires on 4 Feb) and weigh on the downside risks to the economic and corporate earnings growth. Nevertheless, severe downside risks could be mitigated by the grossly oversold indicators (key supports: 1534-1563; resistances: 1600-1618), the availability of the vaccine coupled with supportive monetary conditions and fiscal initiatives.

Given the potential for volatility, a balanced portfolio remains appropriate. Hence, we would adopt a more balanced approach in our top picks with a combination of recovery plays (Tenaga, RHB, DRB, MBM, AEON, GDB), volatility (Bursa) defensives (TIME, Axis), value (Sunway, Armada) and sold down pandemic beneficiaries (Top Glove)

Source: Hong Leong Investment Bank Research - 2 Feb 2021