MARKET REVIEW

Global. Despite a positive June Caixin China manufacturing PMI (June: 51.7) after three months of contraction, MSCI All Countries Asia Pacific Index fell 1.47 pts to 156.53 (-2.68 pts WoW), amid growing concerns of hawkish monetary policy tone by global central banks and heightened recessionary fears. Ahead of the Independence Day holiday (4 July), the Dow tumbled as much as 288 pts amid a poor June PMI manufacturing report and bearish guidance by Micron and Kohl's. However, the benchmark staged a remarkable recovery to rally 322 pts to 31,097 (-1.3% WoW), led by bargain hunting on selected consumer stocks as investors priced in a potential less aggressive Fed rate hikes in 2H22 after the US 10Y Treasuries yield skidded 0.14% to 2.88% due to a looming recession.

Malaysia. Bucking weaker regional markets, KLCI ended with a positive debut on the 1st day in July (+5.5 pts at 1,449.7) amid bargain hunting activities on selected recently bashed-down heavyweights i.e. DIGI, PBBANK, CIMB, PCHEM, NESTLE and IOICORP. Despite the headline gains, market breadth (gainers/losers) was negative at 0.63 whi lst total turnover and value slid 34% and 41% to 1.49bn shares valued at RM1.15bn, respectively. WoW, foreign institutions intensified their selling spree, net selling RM320m shares vs –RM62m a week ago (YTD: +RM6.07bn) vis-à-vis net buying trades by local institutions (5D: +RM183m; YTD: -RM7.65bn) followed retailers (5D: +RM138m; YTD: +RM1.58bn).

TECHNICAL OUTLOOK: KLCI

After plunging from YTD high of 1,620 to a low of 1,428, KLCI has been trending sideways before ending at 1,450 pts last Friday, staging its 1 st weekly gain (13 pts or 0.9%) in six. We expect KLCI to trend sideways in the near term with key neckline resistance at 1,476. Conversely, failure to hold at 1,428 may trigger further slump to towards 1,383-1,400 levels.

MARKET OUTLOOK

We expect KLCI to stay in a choppy mode in July (supports: 1,383-1,400-1,428; resistances: 1,460-1,478-1,500) due to lack of conviction by investors, underpinned by a 24% slide in trading value (June: RM1.81bn vs May: RM2.39bn) amid prevalent headwinds. However, after plunging 171 pts from YTD high of 1,620, we feel that KLCI’s battered valuation of 13.8x CY23 P/E (a 5Y low) has reflected a reasonable degree of the negatives and provided a good opportunity to nibble. 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 - 4 Jul 2022