MARKET REVIEW

Asia/US. Despite news of further scaling back of zero-COVID curbs in China, most Asian markets retreated amid lingering concerns over Fed’s tightening monetary policy. Sentiment was also dampened by China’s disappointing Nov trade data and warnings from big US banks about a likely recession in 2023. The Dow ended flat (+2 pts at 33,596) after swinging between gains (+93 pts) and losses (-178 pts) as investors weighed the possibility of a recession, and the likelihood of a longer-than-expected hiking cycle from the Fed. Meanwhile, the 2-10 Treasury yield curve inverted by 83 bps, the biggest inversion in about four decades, signaling increasing concerns about a potential recession in 2023 amid an aggressively tight Fed’s policy.

Malaysia. After staging a 6.3-pt rebound to 1,477.9, KLCI succumbed to selling pressure in the final minutes to finish -4.7 pts at 1,466.9, as investors awaited more policy leads from the unity government and weighed on external volatility fuelled by inflation and interest rate jitters. Market breadth (gainers/losers ratio) turned negative after 6th consecutive session of gains. Foreigners continued its net selling spree for the 13th sessions out of 15 (-RM259m; Dec: -RM762m) whilst local institutions (+RM231m; Dec: +RM830m) and retailers (+RM28m; Dec: -RM68m) were the major net buyers.

TECHNICAL OUTLOOK: KLCI

KLCI’s near term consolidation will prevail as investors await more policy leads from the unity government and weigh on external volatility fuelled by inflation and interest rate jitters. As long as the index is able to maintain its posture above 1,454 or support trend line (from 2Y low of 1,373), we remain optimistic that KLCI could resume its upward momentum after a brief consolidation. Key supports are pegged at 1,436-1,454 whilst resistances are situated at 1,482-1,504-1,528 zones.

MARKET OUTLOOK

As investors await more policy leads from the unity government, KLCI will consolidate in the near-term ahead of the upcoming 13-14 Dec FOMC meeting and a vote of confidence on PM (when Parliament convenes on 19 Dec). However, downside risk (support: 1,436-1,454; resistance: 1,482-1,504) may be cushioned by expectations of further economic reopening in China, Bursa’s depressed valuation (CY23 P/E 13x vs 10Y mean 16x) coupled with strengthening political stability as a coalition agreement involving all parties in the unity Government will be signed soon. We like OSK (HLIB-BUY-TP RM1.42) amid its undemanding valuations at FY22/23/24 P/E of 5.1x/4.6x/4.2x and attractive dividend yields of 5.3%/5.9%/6.4%, given the group’s stable earnings profile and strong earnings quality derived from a well-diversified conglomerate that has exposure in property, financial services, industries and hospitality. Technically, the stock is poised to retest higher resistances at RM0.975-1.03-1.12 following a bullish downtrend line breakout, with key supports near RM0.88-0.91 cushioning downside.

VIRTUAL PORTFOLIO (FIG1)

In view of the market volatility, we decided to take profit on BAT (5% return) yesterday.

Source: Hong Leong Investment Bank Research - 8 Dec 2022