Global. Asian markets kicked off November trading in positive note as stronger-thanexpected earnings offset worries over inflation and supply bottlenecks. Ahead of the twoday FOMC meeting (2-3 Nov), the Dow eclipsed the 36,000 points for the first time ever but surrendered some of the early 190-pt gain to close +94 pts at 35,913, bolstered by the solid US corporate earnings growth coupled with positive expectations of a sharp improvement in the October employment report (to be announced by Friday).

Malaysia. In the wake of the repercussions from the prosperity tax and higher stamp duty, KLCI bucked the regional markets’ uptrend to end sharply lower, tumbling 31.4 pts to close at 1530.9 (its 8th straight loss). Market breadth turned bearish, with the G/L ratio plunged to 0.17 from 1.02 (29 Oct). Trade flows wise, local institutions (-RM329m; 5D: -RM549m) continue their selling strike whilst foreigners (+RM15m; 5D:-RM35m) and retailers (+RM314m; 5D: +RM578m) were major net buyers in equities.

TECHNICAL OUTLOOK: KLCI

Post Budget 2022 selldown, we expect KLCI to remain lacklustre as investors assess the repercussions from the prosperity tax and higher stamp duty rate. Rebound is only expected to occur once KLCI tumbled to an oversold area, with key supports situated at 1517-1500. On the topside, resistance is revised down to 1560, followed by 1572-1590 hurdles.

MARKET OUTLOOK

Unless staging a strong reclaim above the 1545-1562 gap down, we expect KLCI to extend its consolidation this week as investors continue to digest the sentiment-damaging prosperity tax and higher stamp duty rate. Nevertheless, severe downside risk may be cushioned near 1483-1500-1515 zones by aggressive economic reopening activities with more states are moving to phase 3 & 4 of NRP, high vaccination rate (~96% of the adults had fully vaccinated on 31 Oct) and elevated commodity prices.

Virtual Portfolio- Fig 1

In the absence of positive vibes to stir further buying interest, we decided to square off HSSEB (6% loss) and TAKAFUL (3% loss) to reduce market exposure risk.

Source: Hong Leong Investment Bank Research - 2 Nov 2021