MARKET REVIEW

Asia/US. Ahead of the widely-watched FOMC meeting and tracking overnight losses on Wall St, MSCI All Countries Asia Pacific index slid 1.7% to 148 amid increasing concerns that the Fed could strike a more hawkish tone than expected. The Dow dived 522 pts to 30,183 as investors digested Fed's 5th rate hike YTD and Powell's gloomy outlook for the economy. The Fed delivered a 75 bps rate hike for a 3rd straight meeting while signalling further increases in the next few months (terminal rate is now at 4.6%), with policymakers anticipating cutting interest rates in 2024/2025. Officials also significantly cut their outlook for 2022 economic growth, expecting just a mere 0.2% gain in GDP, down from 1.7% in June. Meanwhile, the 10Y/2Y bond yield curve inversion deepened to -0.51% (the steepest since Feb 1982), as investors are increasingly convinced that Fed's aggressive actions to tame inflation will result in a looming US recession.

Malaysia. Taking cues from Wall St and regional markets’ rout, KLCI tumbled 13.9pts to 1,447.2, ending in the red in five of the six trading days, led by losses in PMETAL, PBBANK, AXIATA, PCHEM, PETGAS, and SIMEPLT. Market breadth turned negative at 0.56 after a brief respite to 1.08 a day ago, dampened by losses across major indices except the energy (+0.75%) and transportation (+0.2%) indices.

TECHNICAL OUTLOOK: KLCI

Following the uptrend line and multiple key MA supports breakdown, the bears are in total control after violating another key support at 1,453 (61.8% FR) yesterday, as the benchmark ended -13.9 pts to 1,447.2. 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 reclaiming above 1,453, 1,468 (50% FR) and 1,485 (downtrend line) hurdles.

MARKET OUTLOOK

On the back of multiple external headwinds including aggressive tightening policies by global central banks, elevated inflation, heightened geopolitical tensions and global recession fear in 2023), sliding RM (vs USD, +9.4% YTD to 4.55), soaring 10Y MGS yield (+0.6% YTD to 4.2%), GE15 fluidity, and resumption of foreign net selling in Sep (- RM545m, Aug: +RM1.98bn), KLCI is expected to continue its downward consolidation. Any technical rebound from an oversold position in anticipation of a market-friendly Budget 2023 (tabling 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 zones.

Source: Hong Leong Investment Bank Research - 22 Sept 2022