Global. Asian markets gained on the technical rebound after last week’s slide, tracking a rebound in China markets as investors bet that slowing China’s economic indicators and rising Covid-19 cases may leave further room for the PBOC to ease policy going ahead. The Dow fell 97 pts to 34836 after surging as much as 257 pts to an all-time high at 35192, as sentiment was jolted by a resurgence of Delta variant infections and a slower-than expected manufacturing data, coupled with hawkish comments by Fed Governor Christopher Waller that the Fed could start to reduce its support for the economy by October if the next two monthly jobs report each show employment rising by 800,000 to 1 million.

Malaysia. Bucking higher regional markets’ gains, KLCI eased 1.6 pts to 1493 as sentiment continued to be dampened by elevated local Covid-19 cases and heightened political fluidity after recent fiasco in Parliament. Market breadth continued to stay below 1 for the 6th straight day with 594 losers beat 440 gainers. In terms of fund flows, foreign investors remained net sellers amounting to RM83m whilst domestic institutions and local retail investors absorbed were net buyers of shares totalling RM47m and RM36m, respectively.

TECHNICAL OUTLOOK: KLCI

We have been negative on the KLCI for the past few weeks, and the index is gradually sloping towards our envisaged 1452-1474-1490 support band after closing below 1500 last Friday. In the short term, the odds will continue to favour the bears, unless the index can reclaim above key resistances of 1500-1510-1534 levels successfully. A successful clearance would lift the benchmark out of the range bound consoli dation mode to retest 1545-1556-1573 zones.

MARKET OUTLOOK

After plunging almost 40 pts in the past five weeks, KLCI could witness a mild rebound this week, supported by the hammer-liked candlestick pattern yesterday. However, the odds will continue to favour the bears and any rebound is likely to be capped at 1500-1510-1534 levels amid local political stalemate, unwavering new daily Covid-19 cases and the upcoming August reporting season. On the flip side, we believe downside risks are likely to be cushioned at 1452-1474 zones, given the aggressive vaccination rates to achieve the targeted 40% and 70% goals by end of Aug and Sep, as well as the government’s optimism that most states will move into Phase 4 of the NRP by Nov.

On stock selection, Wong Engineering’s uptrend remains intact after retracing from the all time high of RM1.56 (12 July) to RM1.21 (30 July) before staging a rebound to close at RM1.32 yesterday. The strong breakout above the 30D SMA or RM1.28 yesterday is likely to improve upside momentum towards the RM1.40-1.47-1.56 hurdles. Key retracement supports are pegged at RM1.21-1.27 zones. To recap, WONG is one-stop manufacturer of high precision stamped and turned metal parts and components serving a wide range of prominent multinationals customers worldwide coming from a wide spectrum of industries including the E&E, test instruments, telecommunication, digital imaging, healthcare and O&G industries. The group has also diversified into construction & property development since 2017 as part of its diversification strategy.

Source: Hong Leong Investment Bank Research - 3 Aug 2021