MARKET REVIEW

Asia/US. Asian markets were in a sea of red, led by selloff in technology stocks following news the US will place new export rules on Chinese chip companies. Also, investors were fretted about tightening financial conditions, heightened geopolitical tensions and rising risks of a recession worldwide. Ahead of the US Sep CPI release (13 Oct) and the start of the earnings season (JP Morgan, Citigroup, Morgan Stanley, PepsiCo, TSMC, United Health) this week, Dow rose 36 pts to 29,239 on technical rebound after plunging 1113 pts in last four session. Risk-off mood persisted as Fed policymakers have been advocating the need to raise the target policy rate to around 4.5% by early next year, even at the risk of a recession. On top of that, the IMF has uncorked a sobering outlook on the global economy, cutting its growth forecast for next year to 2.7% (previous: 2.9%) as the world's largest economies continue to sputter amid aggressive hikes to tame inflation.

Malaysia. In sync with sliding Wall St and regional markets coupled with GE15 uncertainties, KLCI slipped 19.2 pts to 1,386.8, recording its 3rd consecutive decline, led by major selldown in selected heavyweights eg MAYBANK, PMETAL, PBBANK, IHH, MAXIS, PETGAS and KLK. Foreign investors logged net outflows of RM140m (Oct: -RM475m, Sep:-RM1.63bn, Aug: +RM1.98bn) while domestic institutions (+RM81m, Oct: +RM488m, Sep:+RM1.17bn, Aug: -RM2.11bn ) together with local retailers (+RM59m, Oct: RM13m, Sep:+RM452m, Aug: +RM141m) were the major net buyers.

TECHNICAL OUTLOOK: KLCI

After rebounding from a low of 1,385 (3 Oct) to intraday high of 1,428 (6 Oct), KLCI closed below the key 1,400 psychological support yesterday at 1,386.8 amid GE15 jitters and external headwinds. We expect further downward consolidation in the short term, with key supports pegged at 1,334-1,348-1,363 zones. Any residual strength from an oversold rebound is likely to be capped nearby 1,404-1,430-1,454 levels.

MARKET OUTLOOK

Tracking wild swings on Wall St and higher market risk premium for Malaysia following the dissolution of Parliament, KLCI may resume its downward consolidation. Overall, extended consolidation will prevail in Oct after a 7.8% slide in Sep (resistance: 1,404-1,430-1,454; supports: 1,334-1,348-1,363) in wake of jittery market backdrops, driven by (i) global recession fears, (ii) elevated inflation, (iii) heightened geopolitical tensions, (iv) potential downgrades in Malaysian corporate earnings and GDP, and (v) resumption of foreign net selling. We continue to advocate investors to seek refuge in banks, telcos, utilities, consumer, healthcare, autos and construction stocks as we believe the new government after GE15 will continue to be highly supportive of domestic consumption.

Source: Hong Leong Investment Bank Research - 12 Oct 2022