MARKET REVIEW

Global. Asian markets were on edge (MSCI Asia Ex-Japan -0.5%) before the FOMC decision amid surging inflation. Sentiment was also dampened by the rising geopolitical tensions between China and the West following G7’s united front piled pressure on China on trade issues, human rights and called for new Covid-19 origins probe. Wall St slid as the Fed kept interest rates and monthly bond buying steady but sped up their expected pace of policy tightening amid optimism about the US labour market and economy, coupled with heightened concerns for inflation. The Dow tumbled 266 pts to 34033 whilst the US10Y Treasury yield spike 0.08% to 1.58% and the Dollar index rose 1% to 91.4.

Malaysia. As investors weighed on the National Recovery Plan and awaiting the outcome of the Malay rulers’ special meeting and FOMC discussion, KLCI eased 3.1 pts to 1578.3 after hovering in a tight range band at 1576.5-1585 levels. Sentiment was cautious as 668 losers thumped 349 gainers with a total of 4.7bn shares (-1.2bn shares vs 15 June) transacted valued at RM3.1bn (-RM0.5bn vs 15 June). Foreign investors (-RM131m; 5D: - RM267m) were the major net sellers whilst the local institutions (+RM48m; 5D: +RM36m) and retailers (+RM83m; 5D: +RM231m) emerged as the major net buyers in equities.

TECHNICAL OUTLOOK: KLCI

There is no change in our sideways consolidation view in the wake of the FMCO extension to 28 June and Fed’s hawkish stance post FOMC meeting. The tug-a-war between the bulls and the bears will continue at the moment, unless the index can surpass 1590 (50D SMA) and DTL (or 1600 levels) hurdles successfully. Further upsides from here are at 1623-1646 levels. Meanwhile, key supports are near 1566 (lower BB) and 1552 (YTD low) zones.

MARKET OUTLOOK

While we still believe a recovery is an eventuality, the market will remain choppy as investors digest the impact of extension of FMCO to economy and corporate earnings outlook, more hawkish stance by Fed post FOMC meeting, as well as the timing of Parliament reopening (after the King says Parliament should be reconvened 'ASAP’) to allow lawmakers to debate the Emergency Ordinance and the National Recovery Plan (NRP). Nevertheless, there is light at the end of the tunnel with downside risk is cushioned near 1550 zones, as the structured NRP with objective thresholds should help control the Covid-19 pandemic in a more sustainable matter, particularly the acceleration of the nationwide vaccination programme with full vaccination rates to 40% target by Sep/Oct and 60% by Nov/Dec.

Source: Hong Leong Investment Bank Research - 17 Jun 2021