MARKET REVIEW

Global. The MSCI Asia ex Japan fell 0.7% to 647, with property and banking stocks leading the slide on fears that debt-ridden China developer Evergrande’s default would trigger a broad contagion and heighten credit risk. Sentiment was also dampened by a persistent China regulatory crackdown and worries about the resilience of the global economic recovery amid resurgence in Covid-19 cases. Overnight, the Dow trimmed its losses to -63 pts (from as much as -274 pts) to 34751 as an unexpected rise in Aug retail sales underscored the strength of the U.S. economic recovery and renewed expectations for the Fed to tighten monetary policy ahead of the 21-22 Sep FOMC meeting. As a result, the US 10Y Treasury yield jumped 0.04% to 1.34%.

Malaysia. KLCI fell for the 5th straight day (totalling 42.2 pts or 2.6%) to end -0.25 pts ahead of the Malaysian Day holiday on 16 Sep after hovering within 1549.7-1560.6 levels as investors assessed the possibility of a windfall tax being levied on Malaysian corporates and the impact to banks following MOF’s directive to work on exempting loan moratorium interest payments (Oct-Dec 21) for B50 recipients. In terms of fund flows, foreign institutions and local retailers remained the major net buyers amounting to RM77m (5D: RM217m) and RM7m (5D: RM312m) respectively, whilst local institutions logged net selling amounting to RM84m, its 16th consecutive day of net outflow (5D:-RM529m).

TECHNICAL OUTLOOK: KLCI

After sliding 50 pts from 1605 to 1555 on 15 Sep and violating multiple key SMAs supports, current consolidation is likely to prevail for a while but severe downside risk is limited (key supports now at 1533-1545) as the slow stochastic indicator is oversold. On the upside, the index is likely to encounter immediate resistances at 1565-1576-1583 levels. A successful breakout above these hurdles will lift the benchmark back towards 1600-1605 territory.

MARKET OUTLOOK

Following the recent 50-pt slide from 1605 (5M-high) to 1555 on 15 Sep and violating multiple key SMA supports, current consolidation is likely to prevail for a while but severe downside risk is limited (key supports now at 1533-1545) as the slow stochastic indicator is oversold. Moreover, Bursa Malaysia is still underperforming most of its Asian on YTD basis (-4.4%; 14.6x CY22E EPS), making us an even more compelling recovery play for the remainder of 2021. The optimism is reflected by the sustained influx of foreign funds (+RM1.95bn since end July), supported by hopes of easing political risks and confidence in policy continuity, coupled with economic reopening gaining tractions.

As China continues its “Common Prosperity” crackdowns, more outflows from the China/HK markets are likely to prevail in the near term and Bursa Malaysia is likely to remain as one of the beneficiaries due to its laggard status. With domestic institutional funds remain net sellers (-RM2.76bn since end July), further external inflows may stimulate the local institutional funds to play catch up. For investors that missed out on the “mini Aug rally” (+7.1% MoM), we reckon the current market weakness could be the next boat to catch on the broader re-opening theme play. Our top picks have a recovery tilt –Maybank, Tenaga, Bursa (broad based recovery), UWC, VSI, MBM (capacity recovery), MRDIY and FocusP (consumer sentiment recovery). As a balancer we also include defensives (TM, Sentral) and value picks (Armada, Sunway).

Source: Hong Leong Investment Bank Research - 17 Sept 2021