MARKET REVIEW

Global. Ahead of the US June FOMC minutes, Asian markets ended broadly lower as positive sentiment driven by Biden’s proposal to reverse Trump-era tariffs on Chinese imports was overshadowed by mounting fears of hawkish minutes from the Fed’s June meeting, potential global recession and sky-high inflation, coupled with news of a new flare up of Covid cases in China. Overnight, Dow rose 70 pts after swinging between gains and losses as investors digested the hawkish June FOMC minutes and better-than-expected June PMI services data. Meanwhile, Brent futures slid 2% to USD100.7 while the US 10Y Treasury yield (+12bps to 2.93%) and the 2Y yield (+28bps to 3.00%) curve remained inverted in the wake of lingering recession worries.

Malaysia. Tracking further sell-offs in the energy and plantation stocks and persistent foreigners’ liquidation coupled with BNM’s interest rates normalisation path, KLCI plunged 20 pts to end at a 2Y low of 1,420. Market breadth (gainers/losers) continued to hover <1 for a six straight days, as the ratio tumbled to 0.29 vs 0.88 a day before. Foreign institutions remained as net sellers (-RM61m, 5D: -RM337m, YTD: +RM5.94bn) vis-à-vis net buying trades by local institutions (+RM5m; 5D: +RM188m; YTD: -RM7.62bn) and retailers (+RM56m, 5D: +RM148m; YTD: +RM1.68bn).

TECHNICAL OUTLOOK: KLCI

We expect KLCI to be trapped in a range bound consolidation mode. Barring a meaningful reclaim above 1,428 (2Y low) and 1,440 (10D MA) hurdles, the benchmark may continue to slide further towards 1,380-1,400 levels before staging a relief rally. Conversely, a decisive breakout above 1,428-1,440 barriers would spur the index towards 1,460 (1M high) and 1,476 neckline resistance, and 1,500 will act as a formidable barrier.

MARKET OUTLOOK

We expect KLCI to stay in a choppy mode in July (supports: 1,380-1,400; resistances: 1,460-1,476-1,500) 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, underpinned by recent government’s economic rationalization measures, soaring inflation and interest rates upcycle. As anticipated, BNM raised the OPR by +25bps to 2.25% yesterday. Our banking analyst estimates that every +25bps OPR hike would bump up sector NIM by 5-6bps and earnings forecast by 4-5%. Our top picks include MAYBANK, RHBBANK, BIMB and AFFIN.

Source: Hong Leong Investment Bank Research - 7 Jul 2022