MARKET REVIEW

Asia/US. Asian markets surged in early trades, thanks to the Dow’s overnight 2.8% rally, driven by bargain hunting and short-covering activities. However, most markets ended off intraday high amid expectations that a red-hot US Sep CPI will cement Fed’s aggressive rate hike paths in Nov and Dec to tame inflation, as well as concerns over renewed lockdown measures in Shanghai on resurgence of Covid-19 outbreak. Despite positive results from JP Morgan, Citigroup and Wells Fargo, Dow finished -403 pts at 29,634 (still ended +1.2% WoW), as investors digested University Michigan higher 1Y/5Y inflation expectations (as well as the elevated Sep CPI data a day earlier), heightening risks that the cumulative effect of Fed’s aggressive tightening will push the US economy into recession, undermining the outlook for corporate earnings. Key earnings report cards scheduled this week are Goldman Sachs, Bank of America, Netflix, Tesla, J&J as well as P&G.

Malaysia. Tracking higher regional markets, KLCI rallied as much as 18 pts to 1,391.4 but continued foreign selling pressure amid GE15 jittery cut the gains to 9.1 pts at 1,382.5 (WoW: -23.5 pts). WoW, foreigners logged net outflows of RM618m (Oct: -RM810m, Sep:- RM1.63bn) whilst the local retail and institutional investors turned net buyers with RM123m (Oct: +RM44m, Sep:+RM452m) and RM495m (Oct: +RM766m, Sep:+RM1.17bn) shares, respectively.

TECHNICAL OUTLOOK: KLCI

Tracking a prolonged consolidation on Wall St and higher market risk premium perceived for Malaysia following the dissolution of Parliament, KLCI tumbled 23.5 pts WoW at 1,382.5. 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 near 1,400-1,414-1,436 levels.

MARKET OUTLOOK

After sliding to 31M low at 1,382.5, investors would continue to grit their teeth ahead of the Election Commission’s announcement on 20 Oct of GE15 nomination and polling dates, as wild swings (resistance: 1,400-1,414-1,436; support: 1,334-1,348-1,363) are here to stay amid multiple headwinds including (i) global recession fears, (ii) elevated inflation, (iii) heightened geopolitical tensions, (iv) potential lower guidance for Malaysian corporate earnings and GDP, along with (v) perceived higher market risk premium amid GE15 fluidity and resumption of foreign net selling. With capital preservation as the key, we continue to advocate investors to seek refuge in banks, telcos, utilities, consumer, healthcare, autos and construction sectors, in anticipation that the new government post GE15 will continue to be highly supportive of domestic consumption.

VIRTUAL PORTFOLIO (FIG1)

We closed our position on BIMB (return: -5%) last Friday after hitting our cut loss level.

Source: Hong Leong Investment Bank Research - 17 Oct 2022