MARKET REVIEW

Global. Led by a strong rally on Wall St, Asian markets ended mostly higher last Friday, as progress in vaccine distribution and U.S. stimulus hopes prompted bets on further normalisation in the global economy. Despite a mildly disappointed US Jan jobs report , the Dow still gained 92 pts to 31148, boosted by optimism over earnings, stimulus talks and progress on vaccine rollouts. WoW, the Dow surged 3.9%, scoring its biggest percentage gains since the US elections in early November.

Malaysia. Tracking the overnight rally on Dow, KLCI rose as much as 5.6 pts to 1590.5 before giving up the entire gains to shed 6.3 pts at 1578.6, led by losses on plantation firms (expectations of higher Jan 21 inventory) and glove manufacturers (negative reaction to the news on Covid-19 vaccination programs). On the broader market, gainers edged losers by 549 to 532 whilst a total of 6.1bn securities were traded worth RM4.2bn. Foreign (-RM39m) and local institutional (-RM34m) investors remained the major sellers whilst local retailers (RM73m) were the net buyers in equities.

TECHNICAL OUTLOOK: KLCI

After sliding 60.8 pts in Jan to 1566.4, KLCI staged a technical rebound to a high of 1597.9 (3 Feb) before paring the gains at 1578.6 last Friday to end +12.2 pts WoW. As long as the key downtrend line at 1600 is not taken out successfully, KLCI is likely to engage in a consolidation mode, with critical support at 1563 (the critical H&S neckline support) levels. A decisive break down below it would trigger a deeper fall towards 1538 (200D SMA) and 1500 psychological levels, with an eventual H&S target at 1430 zones. Conversely, a successful breakout above 1600 will lift the benchmark higher towards 1618-1642 (upper BB) territory.

MARKET OUTLOOK

Tracking the rally on Wall St and the allowance of all economic sectors to open (with tightening SOPs) coupled with the roadmap of Malaysia’s National Immunisation Plan, KLCI could still retest the stiff 1600 psychological barrier in this CNY holidays-shortened week (11 Feb: half- day trading; 12 Feb). However, further gains are likely to be capped amid elevated Covid-19 infections and the start of the Feb reporting season. 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 - 8 Feb 2021