Global. Asian markets were mixed as investors digested the possibility of slowing growth in the Chinese economy following slower growth in the May manufacturing and services PMI data. Sentiment was cautious that policymakers may be misjudging inflation risks as a slew of US Fed officials are due to speak on 2 June before the 14-15 June FOMC meeting. As at the time of writing, the Dow futures eased 20 pts at 34494 (NYSE was closed due to the Memorial Day holiday) after the blue-chip benchmark surged 1.9% in May, as investors await the US Fed officials’ speeches (following the release of a robust PCE inflation gauge last Friday) and the May employment report this Friday.

Malaysia. KLCI dived as much as 25.9 pts to a low of 1568.5 following the “total lockdown” (Phase 1 from 1-14 June) for the entire nation. However, the benchmark recouped some losses to end -10.9 pts at 1583.6, as sentiment was boosted by the government’s pledge to further ramp up in daily vaccination rates in the 2H21 and expectations that government may roll out another economic stimulus to ease the burden of the rakyat. Foreign institutions (+RM60m; 5D: +RM251m) and retailers (+RM6m; 5D: +RM154m) were the major net buyers whilst local institutions (-RM66m; 5D: -RM405m) remained as net sellers for the 9th consecutive day.

TECHNICAL OUTLOOK: KLCI

Following the total lockdown announcement last weekend, KLCI tumbled as much as 26 pts to a low of 1568 before paring off the losses to 11 pts at 1584, a tad above the 1577 or 200D SMA levels. We reiterate our view that current consolidation mode will prevail unless KLCI is able to stage a successful breakout above the 1605 (LT downtrend line from 1696) levels. A successful clearance would spur the index towards higher upsides near 1623- 1646 levels. Conversely, a decisive fall below 1577 would accentuate further slide 1552 (YTD low) and 1540 (lower downtrend channel) zones.

MARKET OUTLOOK

In the short term, KLCI may encounter an extended consolidation after the “total lockdown” amid escalating risks of earnings disappointment and slower economic activities (HLIB has downgraded 2021 GDP forecast to 4.6% from 5% previously). Nevertheless, we expect the market impact from the latest restrictions to be less severe against the MCO 1.0, given the government’s pledge to further ramp up in daily vaccination rates and recent aid packages, strong trade data, and low interest rates (BNM may reduce OPR by another 25bps should the lockdown prolong beyond a month in the next MPC meeting on 8 July). Key resistances are pegged at 1600-1605-1623 levels whilst supports are situated near 1577-1552-1540 territory.

Source: Hong Leong Investment Bank Research - 1 Jun 2021