MARKET REVIEW

Global. Tracking a strong recovery on Wall St overnight, Asian markets ended mostly higher yesterday, with a rally in technology shares and solid US corporate earnings overshadowing concerns about inflationary pressures, the start of bond tapering programs by key central banks and China’s weaker-than-expected 3Q21 GDP numbers. The Dow jumped 198 pts to 35457, boosted by an upbeat 3Q21 earnings season (S&P 500 earnings is expected to rise 32.4% YoY) and mega technology stocks, despite lingering worries about higher costs, supply disruptions and labour shortages.

Malaysia. Ahead of the Prophet Muhammad’s birthday holiday, KLCI finished +7.7 pts at 1606 on 18 Oct, buoyed by elevated crude oil and FCPO prices coupled with economic reopening optimism with more states are migrating to Phase 3 & 4 of NRP. Market breadth was positive as 573 gainers edged 495 losers. Trade flows wise, both the local institutions and retailers logged net selling flows of RM216m (5D: -RM907m) and RM22m (5D: - RM124m), respectively, whilst foreigners retained their net buying momentum (+RM238m; 5D: +RM1031m) for the 9th straight session.

TECHNICAL OUTLOOK: KLCI

On the backdrop of higher Wall St, the economic recovery optimism following the relaxation on interstate travel and reopening of international borders coupled with the elevated commodities prices, KLCI finally breached the previous high of 1605 (1 Sep) to end at 1606 on 18 Oct. In the wake of the steeply overbought stochastic readings after a sharp 91-pt rally from a low of 1515 (5 Oct), the benchmark may start to consolidate its gains in the near term. Although it is too early to call for a top here but we think further upside may be capped at 1614-1623 zones. Key pullback supports are pegged at 1574-1590 territory.

MARKET OUTLOOK

In the wake of resumption in foreign inflows (~70% correlation between KLCI and foreign shareholding) and economic reopening gaining traction with more states are migrating to phase 3 & 4 of NRP, promising vaccination progress (adult population hits ~93% vaccination rate on 18 Oct), as well as riding on elevated commodity prices, KLCI is expected to progress further as market risk appetite returns. However, stiff hurdles near 1614-1623 levels should prove to be a tougher upside hurdle ahead of the Budget 2022 (29 Oct) and steeply overbought stochastic reading.

Source: Hong Leong Investment Bank Research - 20 Oct 2021