MARKET REVIEW

Asia/US. MSCI All Countries Asia Pacific Index shed 0.7% to 138.9 (WoW: -4.2%; Sep: - 12.4%) as sentiment was dampened by narratives of elevated inflation, geopolitics, spiking interest rates, recession fears coupled with slowing services sector growth and downbeat private manufacturing surveys from China. Dow jumped 130 pts in early trade as market welcomed Fed Vice Chair Brainard’s remark of Fed’s commitment to curbing inflation, but acknowledged the need to monitor the impact raising rates on the economy as the Fed walks the line between curbing inflation and averting recession. However, the benchmark erased all the gain to end -500 pts at 28,725 (WoW: -2.9%; Sep: -8.8%) as upbeat US Aug core PCE price index and personal spending reports paved the path for the Fed to stay aggressive to tame sticky inflation.

Malaysia. Tracking sluggish regional markets and ahead of the UMNO Supreme Council meeting in the late evening (to discuss GE15 timeline), KLCI slipped 2.9 pts at 1,394.6 (WoW: -2.1%; Sep: -7.8%) following persistent foreign net selling (-RM1.5bn in 13th straight session; Sep: -RM1.62bn; Aug: +RM1.98bn) and higher perceived market risk premium for Malaysia in anticipation of an early GE15. Market breadth remained bearish at 0.77, improving from 0.69 (Thursday) and 0.36 (Wednesday) in the last two days.

TECHNICAL OUTLOOK: KLCI

The bears are in total control after breaking below multiple crucial supports to record its 12th decline out of 13 trading days. Following the violation of 1,400 psychological support and Wall St rout coupled with the GE15 fluidity, KLCI could extend its downward consolidation towards our envisaged 1,380 (123.6% FR) and 1,363 (138.2% FR) territory this week. Conversely, any oversold bounce may take place next with stiff hurdles 1,408-1,436-1,454.

MARKET OUTLOOK

Ahead of the tabling of the Budget 2023 this Friday, KLCI could extend its consolidation towards our envisaged 1,380 and 1,363 (stiff hurdles 1,408-1,436-1,454) levels amid higher perceived market risk premium for Malaysia in anticipation of an early GE15. In US markets, all eyes will be turned to the US Sep jobs report (7 Oct) as market participants recalibrate Fed’s aggressive hike path. Following a -13.9% from YTD high and expectations of a period of market turbulence in Oct, we advocate a need for balance in equity allocations, focusing on companies with quality characteristics ― particularly strong balance sheets and healthy free cash flow to offer a buffer in the case of a slowdown or profit squeeze. Our top picks are Tenaga, RHB, Dialog, MAHB, Sunway, Carlsberg, BIMB, VS, SPToto, DNeX, Armada and FocusP.

Source: Hong Leong Investment Bank Research - 3 Oct 2022