MARKET REVIEW

Global. Tracking a rebound from the sharp losses in Wall St, Asian markets ended mostly higher as investors were optimistic of the run-up to the US 3Q21 earnings season and viewed an imminent end to the ultra-loose Fed monetary policy as a vote of confidence in the economy. The Dow surged 535pts or 1.6% to 34912 on a semiconductor-led surge in tech (following upbeat quarterly earnings and guidance from TSMC) and a slew of blowout quarterly 3Q21 earnings despite rising inflation and supply chain bottlenecks as sales growth was robust. Meanwhile, the lower-than-anticipated number of weekly jobless claims and Sep’s PPI also added to the positive sentiment.

Malaysia. After rallying 78 pts in seven days amid recent optimism from economic revival due to travel resumption and reopening of borders, KLCI finally succumbed to profit taking yesterday (on steeply overbought stochastic indicator) to end -7.9 pts at 1592.5. Market breadth was negative as G/L ratio fell to 0.85 after hovering above 1 in the last six days. Trade flows wise, foreigners were the major net buyers for a 7th consecutive session (+RM80m; 5D: +RM744m) whilst retailers (-RM33m; 5D: +RM7m) joined local institutions as net sellers (-RM47m; 5D: -RM751m).

TECHNICAL OUTLOOK: KLCI

In the wake of the grossly overbought stochastic readings, following a steep 87-pt rally from a low of 1515 (5 Oct) to a high of 1602 yesterday, strong profit-taking weighed on the index to end -7.9 pts at 1592.5. As long as the index can maintain its posture above 1574 (200D MA) levels, we remain optimistic that the benchmark could surpass 1605 to march higher towards 1623 zones after a mild consolidation to neutralize the overbought levels. Failure to hold at 200D MA would induce further selling pressure towards 1558-1576 territory.

MARKET OUTLOOK

In the wake of resumption in foreign inflows (~70% correlation between KLCI and foreign shareholding) and economic reopening gaining traction with interstate and overseas travels allowed for the fully vaccinated effective 11 Oct, as well as riding on elevated commodity prices, KLCI is expected to progress further as market risk appetite returns. However, stiff barrier remains at 1605 (1 Sep high), while 1623 (26 Apr high) should prove to be a tougher upside hurdle amid lingering concerns that unpopular taxes could be mooted in Budget 2022 to boost revenue and overbought stochastic reading.

Source: Hong Leong Investment Bank Research - 15 Oct 2021