MARKET REVIEW

Asia/US. Asian markets ended mixed as investors weighed the latest hawkish comment by NY Fed President John Williams, disappointing China’s Aug PMI manufacturing and services data, fresh Covid lockdowns in major cities of Shenzhen, Guangzhou, and Dalian, as well as rising US-China tension after two US Navy warships sailed through international waters in the Taiwan Strait recently. Dow tumbled 281 pts at 31,510 (-1335 pts or -4.1% in Aug) to record its 4th straight losses whilst US 10Y Treasury yields jumped 9 bps to 3.19% as a wave of hawkish commentaries from Fed leaders reiterated policymakers’ firm stance on fighting elevated inflation with further interest rate hikes dampened sentiment. On the data front, a report from ADP showed private payrolls increased by 132k in August (forecast: 300k), ahead of the key non-farm payrolls report on Friday.

Malaysia. Led by persistent foreign net buying and higher regional markets ahead of the Merdeka Day holiday on 31 Aug, KLCI jumped 10.5 pts to 1,512.1 at the final hour of trading on buying interest in selected heavyweights such as PETDAG, PBBANK, TENAGA, KLK and PPB.

TECHNICAL OUTLOOK: KLCI

On 30 Aug, KLCI soared 10.5 pts to 1,512.1 (+19.8 pts or 1.3% in Aug), ending comfortably above 20D MA or 1,500 psychological levels. We expect range bound consolidation to prevail in the short term unless the bulls could spur KLCI to break key hurdles at 1,515 (downtrend line from 1,615) and 1,529 (200D MA) levels successfully. Meanwhile, major supports are pegged at 1,475-1,487-1,500 zones.

MARKET OUTLOOK

Tracking the seasonally weak performance in Sep (avg 10Y/20Y: -1%/-0.9%) and recent Wall St rout, KLCI is expected to like to maintain a short term range bound consolidation mode (support: 1,460-1,480; resistance: 1,515-1,530) as investors assess the possibility of Malaysia’s corporate earnings and GDP growth to decelerate in 2H22 (amid elevated inflation, rising interest rates, government’s economic rationalization measures, global economic slowdown etc.), upcoming BNM meeting on 8 Sep, hawkish Fed, GE15 risk, as well as escalating US-China tensions. Meanwhile, PM recent announcement of pay hikes and cash aids for civil servants may bode well for consumers in the midst of dwindling consumer sentiment. Our top picks are BFood, MRDIY, FocusP, HEIM and CARLSBG.

Source: Hong Leong Investment Bank Research - 1 Sept 2022