Waiting Out the Storm

Bumping along the bottom with short term oversold rebound target at 1,440-1,460 levels

MARKET REVIEW

Global. Last Friday, Asian markets ended mixed as sentiment was dampened by worsening Covid-19 trends, a weaker-than-expected China 2Q GDP amid Covid lockdowns, and the reluctance of the PBOC to cut interest rates further. Dow rallied 658 pts to 31,288 (-0.2% WoW), snapping a 5D losing streak following upbeat June retail sales (1%, forecast: 0.8%) and improving July consumer sentiment index (51.1, forecast: 49.9) data, as well as strong earnings from Citigroup and United Healthcare. Sentiment was also boosted by reducing odds of a 100 bps hike amid falling Michigan 5Y inflation expectations (July: 2.8%, June: 3.1%) and softer tones from Fed officials as they voiced wariness about a super-sized increase on 26-27 July FOMC meeting.

Malaysia. Last Friday, KLCI eased 1.8 pts to 1,418.4 (-7.3 pst WoW) as persistent weak underlying sentiment (daily trading value plunged to 7M low at RM1.06bn and negative market breadth sustained for the 11th out of 12th sessions) amid a confluence of headwinds. In a holiday-shortened week, local retailers continued their net weekly buying trades of RM53m (vs RM90m a week before) as both the foreign and domestic institutions logged net weekly outflows of RM28m (vs –RM120m previously) and RM25m (vs +RM30m previously), respectively.

TECHNICAL OUTLOOK: KLCI

KLCI resumed its descent last week, logging its 9th weekly decline in the past 11 weeks. Despite an oversold position after sliding 202 pts from YTD high of 1,620, KLCI could still engage in a consolidation mode, with short term resistance near 20D MA/1,441 levels. Clearing this hurdle may lift the index towards more formidable resistance at 1,460-1,475 levels. Conversely, failure to defend the critical 1,400 psychological support would trigger further slide towards 1360-1385 levels.

MARKET OUTLOOK

Tracking a relief rally from Wall St, KLCI may experience an oversold rebound this week. However, further upside may be capped near 1.440-1,460 zones (key supports: 1,385- 1,400) amid cautious undertone as we navigate the US 2Q22 results season and 26-27 FOMC meeting, the expiry of government-PH MOU on 31 July, Bursa Malaysia upcoming Aug reporting and a resurgence of Covid cases. Following a 39% YTD plunge in the KLTech index, we see pockets of opportunity on technology stocks, supported by stronger USD and steady growth in the global semiconductors sales (CY22 -23: +12%/+4%) and equipment spending (CY22-23: +12%/+3%). We maintain OVERWEIGHT in technology sector and tactically in favour of front-end players. Our top picks are Frontken and UWC.

Source: Hong Leong Investment Bank Research - 18 Jul 2022