MARKET REVIEW

Global. Asian markets rose in early trades as investors welcomed an upbeat China’s June PMI services index and reports that President Biden is set to reverse Trump-era tariffs on Chinese imports to quell surging prices. However, most markets ended mixed amid lingering fears of an impending recession as global central banks tighten monetary policy to rein in soaring inflation. Dow staged a remarkable rebound, losing 129 pts at 30,968 from a steep intraday 742-pt slump, while the Nasdaq bucked the trend to rally 1.68% to 11,780 amid further slide in US 10Y Treasury yield (-0.07% to 2.81%) and Brent futures (-9.5% to USD102.7) on recession fears. Overall, investors are contending with a litany of headwinds, including elevated inflation, hawkish Fed, looming recession, weakening economic data, and the downside risk to earnings estimates (ahead of the 2Q22 results season next week).

Malaysia. After sliding 183 pts from YTD high of 1,620 to 1,437.5, KLCI staged a mild 3.3- pt rebound at 1440.8 yesterday, led by bargain hunting acti vities on PETDAG, PMETAL, TENAGA, PBBANK and MRDIY. Market breadth (gainers/losers) continued to hover <1 in the last 5 days, despite improving ratio to 0.88 vs 0.33 a day before. After net sold RM384m in the last 4 sessions, foreign institutions turned net buyers (+RM14m, 5D: -RM370m, YTD: +RM6bn) followed by retailers (+RM8m, 5D: +RM118m; YTD: +RM1.62bn) while local institutions were the major net sellers (-RM22m, 5D: +RM252m; YTD: -RM7.62bn).

TECHNICAL OUTLOOK: KLCI

Barring a strong reclaim above 20D MA near 1,458, the benchmark may continue to be trapped in a range bound consolidation mode. A decisive fall below 1,428 (2Y low) will trigger further selloff towards 1,390-1,400 levels while a strong breakout above 1,458 would spur the index towards stiff neckline resistance at 1,476 and 1,500 territory.

MARKET OUTLOOK

We expect KLCI to stay in a consolidation mode in July (supports: 1,390-1,400-1,428; resistances: 1,460-1,478-1,500) due prevalent headwinds such as (i) elevated inflation, (ii) capital outflows amid aggressive Fed, (iii) protracted Russia-Ukraine war, (iv) political overhang amid speculation of GE15 in 2H22, (v) looming US recession and (vi) paucity of earnings and GDP growth in 2H22 following government’s recent subsidy rationalization measures. On a separate note, we expect BNM to increase OPR by another 0.25% on 6 July and another 0.25% on 8 Sept, which bode well for banks as they benefit from the firmer interest rate trends. Our top picks include MAYBANK, RHBBANK, BIMB and AFFIN.

Source: Hong Leong Investment Bank Research - 6 Jul 2022