MARKET REVIEW

Asia/US. Tracking an overnight Wall St rally, Asian markets ended higher in anticipation of more macro-economic policy supports from China after recent weak economic data, apart from PBOC’s recent reduction of key lending rates on Monday to kickstart an ailing economy. Overnight, Dow tumbled as much as 324 pts following a sluggish July retail sales (0%, forecast: +0.1%) and mixed earnings from Krispy Kreme, Target and Lowe’s. However, the index pared the losses to -171 pts at 33,980 amid a less hawkish than expected July FOMC minutes that suggested the Fed will continue to support hiking rates to a restrictive level, though also backed the idea of easing the pace of rate hikes at “some point.”

Malaysia: Bucking higher regional markets, KLCI surrendered its early +9.1 pts gain to drop 0.62-pt at 1,518.2, led by profit taking activities on PETGAS, DIGI, PMETAL, RHBBANK, PCHEM and MAXIS. Market breadth (gainers/losers) fell to 0.89 from 1.18 a day ago whilst daily volume and value stayed flattish at 2.72bn shares worth RM2.21bn.

TECHNICAL OUTLOOK: KLCI

After 12 days of sideways consolidation within 1,483-1,512 zones, KLCI finally staged a strong neckline resistance breakout above 1,512 to a high of 1,528 (a tad below our envisaged target near 200D MA or 1,531 zones) before ending lower at 1,518 yesterday. The shooting star pattern could indicate a potential reversal may be taking place next, with immediate supports at 10D/20D MA near 1,491-1,504 levels. Conversely, a successful breakout above 1,531 may lift the benchmark to a more formidable resistance at 1,566 (76.4% FR) levels.

MARKET OUTLOOK

In sync with an overnight profit taking from Wall St and negative technical reversal pattern amid a potential shooting star formation, KLCI may continue its sideways consolidation (supports: 1,490-1,500; resistances: 1,530-1,550) after rallying from a low of 1,408 to a high of 1,527 yesterday. Overall, we see cautious underlying sentiment to prevail as investors mull ongoing Aug reporting season (to gauge how the labour shortage, rising raw material costs, higher minimum wage and supply chain issues affect corporate earnings), a cautious Malaysia 4Q22 GDP outlook (i.e. rising interest rates, economic rationalisation measures, global economic slowdown), speculation of GE15 in 4Q22, as well as escalating US-China tensions.

Source: Hong Leong Investment Bank Research - 18 Aug 2022