MARKET REVIEW

Global. Ahead of the Powell’s speech and tracking overnight losses on Wall St, MSCI All Countries Asia Pacific Index gave up 1.52% to 159.6 after rebounded from a 2Y low of 155.3, as a drop in June US consumer confidence dampened investor sentiment and highlighted the looming risk of a recession. The Dow jumped as much as 205 pts before narrowing its gains to 82 pts at 31,029. Market sentiment remained largely unchanged with concerns over a looming recession and the Fed’s strategy putting inflation risks ahead of economic growth. Powell reiterated Fed's commitment to control red -hot inflation and noted that the US economy is in a good shape and well positioned to withstand tighter monetary policy, although there is a risk it will slow more than needed.

Malaysia. Copying sluggish regional markets, KLCI fell 3.3 pts to 1,451.5 after soaring 23.7 pts in the last three days, led by selloff in PMETAL, PBBANK, PCHEM, PPB and SIMEPLT. Total turnover and value rose 3.9% and 9.9% to 2.38bn shares valued at RM1.77bn whilst market breadth (gainers/losers) turned negative at 0.78 after hovering above 1.00 in the last three sessions. In tepid trading session, foreign institutions (-RM95m, 5D: -RM99m; YTD: +RM6.28bn) were the major net sellers vis-à-vis net buying trades by local institutions (+RM70m; 5D: RM7m; YTD: -RM7.81bn) and retailers (+RM25m, 5D: +RM92m; YTD: +RM1.53bn).

TECHNICAL OUTLOOK: KLCI

After staging a 31-pt technical rebound from a 2Y low at 1,428 (23 June) to a high of 1,459, KLCI slipped 3.3 pts to 1,451.5 in line with overnight slide on Wall St. Barring any fall below support levels at 1,428, the bellwether may continue its oversold rebound in the near term to retest stiff neckline resistance at 1,478. Conversely, failure to hold at 1,428 may trigger further selloff towards 1,400 levels.

MARKET OUTLOOK

We reckon KLCI to stay choppy albeit on upside bias in the final day of 1H22 on potential window-dressing activities. However, upside may be capped near 1,478 levels (supports: 1,400-1,428) due to lack of conviction by investors with tepid trades amid prevalent headwinds. After plunging 169 pts from YTD high of 1,620, we feel that battered valuation have reflected a reasonable degree of most of the negatives as KLCI’s CY23 P/E of 13.8x is at a 5Y low. Our 3Q top picks are a combination of interest rate upcycle (RHB, Affin), commodity plays (PMetal, KLK, DNeX), reopening (Sunway, Evergreen, FocusP) and value/sold down stocks (Tenaga, Dialog, Armada, Kobay).

Source: Hong Leong Investment Bank Research - 1 Jul 2022