MARKET REVIEW

Global. Tracking a rally on Wall St overnight, Asian markets ended mostly higher, boosted by productive stimulus talks between Biden and Replublicans, the unveiling of a high spending 2021/22 budget in India to kickstart the pandemic-hit economy coupled with easing concerns about tight liquidity conditions and falling cases of new coronavirus infections in China. After hitting a 4W low of 29856 (29 Jan), the Dow staged a 2nd day rebound to end 475 pts higher at 30687, as ongoing positive 4Q20 earnings season and signs of easing Covid-19 pandemic (as the Covid-19 vaccine roll out continued and infection rates slowed) prompted bullish bets on cyclical stocks on the back of the fading momentum in the short-squeeze trade.

Malaysia. In tandem with higher regional markets and a strong recovery in index-linked glove, KLCI staged a commendable 14.1 pts rebound (following a 30.3 pts slide WoW), as sentiment was boosted by the government’s assurance that the delivery of Pfizer vaccines is on track and positive news, overshadowed the extension of MCO 2.0 to 18 Feb (except Sarawak). Following a net outflow of RM208m i n Jan, foreign investors became the net buyers (RM179m) whilst the local institutional (-RM173m) and retailers (-RM6m) were the net sellers in securities yesterday.

TECHNICAL OUTLOOK: KLCI

Following the strong 14.1-pt rebound to end at 1580.5 after sliding 60.8 pts MoM, KLCI’s near term technical view has improved amid the bullish Harami pattern and hook -up in technical indicators. As long as the critical H&S neckline support at 1563 is not violated, the benchmark could stage further follow-up recovery towards short term 1600-1618 resistance levels. Conversely, a decisive fall below 1563 would trigger a deeper slide towards 1535 (200D SMA) and 1500 psychological levels, with an eventual H&S target at 1430 zones.

MARKET OUTLOOK

Pending more details of an extension of MCO 2.0 to 18 Feb (widely expected by market), KLCI is likely to trend higher today in line with overnight gains on Wall St and improving technical readings. However, the index could face some stiff resistances at 1600 -1618 amid elevated Covid-19 infections and the start of the Feb reporting season. Nevertheless, severe downside risks could be mitigated by the grossly oversold indicators (key supports: 1535-1563), 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 - 3 Feb 2021