MARKET REVIEW

Global. Asian markets were in a sea of red last Friday, rattled by reports of a Russian attack in Europe’s largest nuclear power plant located in Ukraine. Sentiment was also roiled by the fears of knock-on consequences for the global economy, as both Russia and Ukraine are major sources of energy, agriculture, and precious metals to the world, in light of the stretched global supply shortages and elevated inflation from escalating Russia Ukraine war accompanied with wide-ranging sanctions on Russia. The Dow slid 180 pts to 33,615 whilst the Nasdaq skidded 225 pts at 13,313 as heightened Russia-Ukraine war eclipsed a solid Feb jobs data (+678k vs consensus +400k). The safe-haven US 10Y Treasury yield tumbled 0.11% to 1.73% while the Brent crude oil prices spiked 6.9% to USD118.1 as the disruption of Russian exports from Western sanctions outweighed hopes for more Iranian supply if Washington reaches a nuclear deal with Tehran.

Malaysia. Tracking lower regional markets, KLCI surrendered back 14.6 pts from 3 March 20.4-pt gain to end at 1,603.9 (+12.2 pts WoW) as sentiment was dampened by broad based selloff in the energy (-3.9%), technology (-3.5%), plantation (-2.7%) and construction (-2.2%) sectors. Market breadth was bearish, with decliners beating gainers 849 to 239. WoW, foreign investors (20th session of straight net inflows) and local retailers net bought RM1.08bn and RM230m shares, respectively whilst domestic institutions net sold RM1.31bn shares (21st session of net outflows).

TECHNICAL OUTLOOK: KLCI

After rallying 100 pts from YTD low of 1,503 to 1603 last Friday, we expect KLCI to engage in a sideways consolidation to neutralise the overbought level. This week, if there is no follow-through buying to lift KLCI out of the 1,600-1,620 (YTD high) barriers, we need to brace for another round of selling, targeting 1,565-1,575-1,585 range again. On the flip side, a strong breakout above 1,620 may lift the index to retest 1,642 (52W high) levels.

MARKET OUTLOOK

In the wake of Bursa Malaysia’s defensive traits (commodity-centric industries benefitting from current elevated crude oil and CPO prices, high vaccination rates, expectations of international borders reopening announcement this week), robust foreign net inflows (YTD: +RM3.76bn) coupled with a less hawkish Fed, we may witness KLCI make another attempt to break the YTD high hurdle at 1,620 levels this week.

However, we see a bumpy road ahead as a protracted Russia-Ukraine war, extensive Western allies’ sanctions against Russia, and skyrocketing inflation as well as less compelling valuations (following KLCI’s huge 100-pt rally from YTD low 1,503) could limit the market’s upside potential.

Source: Hong Leong Investment Bank Research - 7 Mar 2022