MARKET REVIEW

Global. Asian markets ended mixed last Friday, as investors assessed signals from the latest US corporate earnings amid elevated inflation and aggressive tightening Fed tightening, looming recession coupled with protracted Russia-Ukraine war. Sentiment stays cautious ahead of the key 26-27 July FOMC meeting after ECB’s larger-than-expected 50 bps hike and new bond-buying program last Thursday. Following a 3-day 965-pt rally, Dow ended -138 pts at 31,899 after fluctuating 488 pts within intraday peak and trough. Overall, investors switched back to risk-off mood, dampened by disappointing results from social media stocks (i.e. Snap and Twitter) and a gloomy July S&P Global US Composite PMI (47.5, June: 52.3) coupled with persisted 10Y-2Y yield curve inversion at -0.21, fuelling recessionary worries.

Malaysia Tracking an upbeat Wall Street performance overnight and a resumption of foreign net buying, KLCI soared 15.5 pts to 1,465.8, recording a 3rd day winning streak, led by active buying interests on banks, telcos, utilities, and metals. Market breadth was above 1 for a 3rd day (2.09 vs 1.95 a day before). WoW, we saw increased fund flows movements with foreign investors’ strong net buying trades (RM173m) to match the net selling flows (amounting to RM69m and RM104m, respectively) by the local and retail investors.

TECHNICAL OUTLOOK: KLCI

Following a strong 3.3% relief rally last week to close above 10d/20d/30d MA, KLCI is poised to retest the key neckline resistance at 1,475 next. A successful breakout may drive the benchmark higher towards 1487 and 1,500 psychological levels before profit-taking emerges. Weekly supports are situated at 1,430-1,442-1,457 levels.

MARKET OUTLOOK

Tracking increased foreigners’ net inflows and a bullish 3.3% relief rally last week to 1,465.8 (within our envisaged resistance targets at 1,460-1,475), KLCI may advance further to reclaim above key neckline resistance at 1,475 and refilling the 1,483-1,493 gap next. However, we expect formidable barriers at 1,500-1520 amid cautious market undertone in the absence of fresh catalysts as investors recalibrate the highly-anticipated Fed policy outcome (forecast: 75 bps hike) and outlook on 27 July, a resurgence of Covid cases and Bursa Malaysia upcoming Aug reporting season. Meanwhile, WHO’s declaration of the monkeypox as a global health emergency may trigger trading interests on glove counters. However, aggressive expansion during the pandemic has tipped the rubber glove sector into an oversupply state, which will continue to weigh down glove makers. Maintain underweight on gloves.

Source: Hong Leong Investment Bank Research - 25 Jul 2022