MARKET REVIEW

Asia/US. As investors eye a supersized Fed’s hike of 0.75% on 22 Sep (Malaysian time 2am), MSCI All Countries Asia Pacific index staged a 0.64% technical to 150.56 from a recent 5-day rout. Ahead of the FOMC’s decision tomorrow, Dow resumed its selling spree (-313pts to 30,706) with traders priced in 82% probability of a 75 bps hike and 18% chance of a jumbo 100 bps increase. For Nov and Dec meetings, traders are now pricing in a 60% and 49% probability of 75bps and 50bps hikes (i.e. 4.25-4.50% by end 2022) respectively, signalling the Fed’s willingness to persist with the front-loading of rate hikes to combat inflation. Meanwhile, the 10Y bond yield added 7bps to 3.56% (highest since 2011) whilst the more policy-sensitive 2Y yield advanced 1bps to 3.95% (a fresh 15Y high), aggravating concerns about a looming US recession.

Malaysia. After sliding 46.4 pts in the last four days, KLCI jumped 9.6 pts (reduced from +14.1 pts) in line with a rebound in regional markets, although anticipation of a hawkish FOMC’s decision on Thursday kept bigger gains in check. After recording a negative market breadth backdrop in the last four days, market breadth turned positive at 1.08, led by broad gains in major sectors except the energy index (-0.45%).

TECHNICAL OUTLOOK: KLCI

Following the uptrend line and multiple key MA supports breakdown, the bears are in control despite the index staging a 9.6-pt technical rebound after tumbling 46.4 pts in the last four days. We reiterate that an extended downward consolidation may prevail within our envisaged 1,436 (76.4% FR), 1,418 and 1,408 (25M low) supports unless KLCI could swiftly reclaim above 1,468 (50% FR) and 1,488 (downtrend line) hurdles.

MARKET OUTLOOK

On the back of multiple external headwinds (i.e. aggressive tightening policies by global central banks, elevated inflation, heightened geopolitical tensions and fears of a global recession in 2023), sliding USDMYR (+9.4% YTD to 4.56), soaring 10Y MGS yield (+0.58% YTD to 4.18%), GE15 fluidity, and a resumption of foreign net selling in Sep, KLCI is expected to trap in a downward consolidation in the short term. Any technical rebound from recent selloff in anticipation of market-friendly Budget 2023 (on 7 Oct) is likely to be capped near stiff hurdles at 1,468-1,482-1,500 levels, whilst key supports are pegged at 1,408- 1,418-1,436 territory.

Source: Hong Leong Investment Bank Research - 21 Sept 2022