MARKET REVIEW

Global. MSCI All Countries Asia Pacific index tumbled 1.25% as investors weighed rising Covid cases in China raised fears about wider lockdowns. Sentiment was also clouded by bets that the Fed will remain hawkish on 26-27 July FOMC meeting amid an upbeat US June jobs data last Friday and expectations that US June CPI figure on 13 July will point to elevated consumer prices. Overnight, the Dow lost 164 pts to 31,174 on perceived risk -off tone, as a solid June jobs report and another robust June CPI print will reinfo rce expectations for continued aggressive tightening stance from the Fed. Meanwhile, 2Q22 earnings season this week could also represent the next catalyst for stocks for any signs of cautious management commentary amid heightened recession fears.

Malaysia. Ahead of the extended Hari Raya Haji holiday, KLCI staged a 7.1-pt technical rebound to 1,425.8 last Friday after hitting a 2Y low of 1,418 on Thursday, led by bargain hunting on selected heavyweights i.e. PCHEM,, PBBANK, PETDAG, CIMB and MAYBANK. Market breadth (gainers/losers) rebounded to 1.30 after hovering <1 for seven straight days. In line with a 18% drop in weekly trading value to RM1.3bn last week, foreigners’ net outflow also slipped to RM121m (vs –RM320m a week before) as both the domestic institutions and local retail investors logged net weekly buying trades of RM30m and RM91m, respectively.

TECHNICAL OUTLOOK: KLCI

After diving 202 pts from YTD high of 1,620 to a 2Y low of 1,428 (7 July), KLCI staged a long-awaited 7.1 pts technical rebound to end at 1,425.8. WoW, the index slid 23.9 pts to record its sixth decline out of seven. In the short term, KLCI may strive to find a firmer footing near 1,400-1,418 before staging a meaningful relief rally. A successful breakout above 1,445 barrier (20D MA) would spur the index towards 1,460 (1M high) and 1,476 neckline resistance, before heading to a formidable resistances at 1,500 levels. Conversely, a further breakdown below 1,400 could drag the index lower towards 1340-1370 levels.

MARKET OUTLOOK

Weighed by the multi-layered of challenges 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 r ationalization measures, soaring inflation and interest rates upcycle, we expect KLCI to stay in a choppy mode in July, striving to find a firmer footing near 1,400-1,418 before staging a meaningful relief rally towards 1,445-1,460-1,476 levels.

Source: Hong Leong Investment Bank Research - 12 Jul 2022