MARKET REVIEW

Global. Ahead of the key US May CPI data, Asian markets ended mostly higher (MSCI Asia Ex-Japan +0.5%) amid declining US 10Y Treasury yield, in anticipation that the Fed will maintain its dovish monetary policy stance next week (FOMC meeting: 15-16 June) as current inflation pressure is transitory rather than permanent. Despite an upbeat May CPI data at 5% YoY (fastest pace in 13 years), Wall St ended higher whilst the US 10Y Treasury yield slid 0.06% to 1.43% (-0.35% from 52-week high of 1.78%) as investors remained positive that the Fed would maintain its easy monetary policy and tolerate higher inflation for some time to offset years in which inflation was lodged below its 2% target.

Malaysia. Bucking higher regional markets, KLCI drifted 1.6 pts lower to 1579.9 as investors weighed on the elevated Covid-19 cases, slow vaccinations and political fluidity following the meetings between political party heads with the King. Foreign institutions (- RM50m; 5D: -RM345m) resumed selling for a 2nd day whilst retailers (+RM35m; 5D: +RM305m) and local institutions (+RM15m; 5D: +RM40m) were the major net buyers.

TECHNICAL OUTLOOK: KLCI

After staging a technical rebound from 1552 (YTD low), KLCI is still unable to break the 1603 downtrend line (DTL) hurdle. In our view, current sideways consolidation mode will prevail with key supports at 1577-1567-1552 zones. Only a successful breakout above 1592 (50D SMA) and 1603 barriers may accelerate further upside momentum towards 1611-1623-1646 levels.

MARKET OUTLOOK

While we still believe a recovery is an eventuality, we maintain 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 coupled with risks of earnings and economic disappointments during recent lockdown will continue to suppress any rebound potential. On stock selection, the overnight commendable Nasdaq performance (+0.8% to 14020) and falling US 10Y Treasury yield (-0.35% from YTD high of 1.78%) could spillover to local technology stocks, triggering renewed buying optimism. We prefer INARI (HLIB-BUY-TP RM3.81), FRONTKN (HLIB-BUY-TP RM3.88), UWC (HLIB-BUY-TP RM7.28), UNISEM (HLIB-BUY-TP RM9.88), VITROX (HLIB-BUY-TP RM17.95), UCHITEC (HLIB-BUY-TP RM3.83) and VS (HLIB-BUY-TP RM1.72).

Source: Hong Leong Investment Bank Research - 11 Jun 2021