Market Review 

Global. Ahead of the release of April Fed minutes, Asian bourses ended lower as uncertainties over inflation and a resurgence of Covid-19 cases in many parts of Asia. Sentiment was also dampened by crypto-currencies’ rout (due to regulatory moves by China) and sliding oil prices on fears of slowing demand amid a new wave of movement restrictions as Covid-19 cases surged. The Dow plunged as much as 587 pts before paring the losses to 164 pts at 33896 after the April FOMC minutes showed Fed officials were cautiously optimistic about the US recovery with some starting to consider the bond tapering topic at upcoming meetings. Sentiment was also compounded by sliding energy and raw-material stocks amid mounting concern about inflation and potential curbs on monetary stimulus.

Malaysia. KLCI slid as much as 17 pts amid lingering worries over the potential for full MCO state lockdowns due to spiking Covid-19 cases locally, but active buying interests on the glove and oil & gas related stocks mitigated the losses to 10.8 pts at 1580.5. Market breadth was bearish with loser thumped gainers by 905 to 228. Local institutions (-RM24m; 47.1% of trading value) joined foreign investors (-RM26m; 14.3% of trading value) as the major net sellers whilst retailers (+RM50m; 38.6% of trading value) were the net buyers in equities.

TECHNICAL OUTLOOK: KLCI

Although KLCI has staged a decent rebound following the Hammer pattern formation on 6 May, we reiterate our short to mid-term range bound consolidation view (4-8 weeks) for the index, with regular pockets of volatility. On the upside, congested resistances are spotted at 1600-1623 levels. Only a successful breakout above these hurdles would spur a fresh run towards 1642-1651-1670 levels. Conversely, a breakdown below 200D SMA near 1577 would accentuate a bearish move towards 1564-1556-1534 levels. 

MARKET OUTLOOK

We reiterate our short term sideways call for now as the KLCI continues to trade within the 1556 (YTD low) and 1600 psychological levels (with stiffer resistances situated at 1623- 1642). The unwavering spread of Covid-19 infections locally and lingering fears of further MCO tightening in Selangor (the biggest GDP contributor to Malaysia), as well as slower vaccination pace, will continue to suppress any rebound potential as we are entering the peak of the May reporting season. On stocks’ selection, the overnight commendable Nasdaq performance (from -231 pts to -4 pts at 13299) may spillover to local technology stocks, triggering renewed buying optimism after recent selldown (-24% from the peak for HLIB coverage). We prefer INARI (HLIB-BUY-TP RM3.88), FRONTKN (HLIB-BUY-TP RM3.88), UWC (HLIB-BUY-TP RM7.28), UNISEM (HLIB-BUY-TP RM9.88), VITROX (HLIB-BUY-TP RM17.95), and VS (HLIB-BUY-TP RM1.72).

Source: Hong Leong Investment Bank Research - 20 May 2021