MARKET REVIEW

Asia/US. Most Asian markets closed lower ahead of the key US PCE index (the Fed's preferred inflation gauge), due to concerns about further rate hikes in the face of higher than-anticipated inflation readings and evidence of resilience in the US economy. Meanwhile, the NIKKEI 225 rallied 1.3% after Kazuo Ueda (incoming new governor of the BOJ) testified that the central bank must maintain its record-low interest rates in order to boost the economy. The Dow tumbled 337 pts to 32,817 (-3% WoW) as investors digested hotter-than-forecasted Jan PCE index inflation data and a revised higher Feb consumer sentiment index, signalling further rate hikes by the Fed. Meanwhile, the 2Y-10Y Treasury yield curve inverted by 83 bps, the deepest inversion since Oct 1981, sparking new concerns about a possible recession.

Malaysia. Following lower regional markets, the KLCI fell as much as 9.6 pts before paring its losses to 0.9-pt at 1,456.8 (-20.1 pts WoW), as fears of punitive new taxes failed to materialise in the revised Budget 2023 (such as prosperity tax, capital gain tax, sin tax or GST), contrary to what had been predicted prior to the budget's re-tabling. Market breadth decreased from 1.18 a day earlier to 0.78, remaining negative for the 14th out of the 16 sessions in Feb. For the 5th day in a row, foreign institutions were the net buyers (+RM18m, Feb: RM0), whilst retailers (-RM6m, Feb: +RM312m) and local institutions were the major net sellers (-RM12m, Feb: -RM312m).

TECHNICAL OUTLOOK: KLCI

Despite a potential downtrend reversal following the Hammer candlestick pattern last Friday, KLCI might encounter a cluster of hurdles near 1,475-1,481-1,490 levels. Only a successful breakout above these barriers will lift the index higher towards 1,500-1,528 levels. Conversely, a decisive breakdown below the 1,448 (last week’s low) could trigger further correction towards 1,432 zones.

MARKET OUTLOOK

In the absence of significant market-unfriendly policies in the revised Budget 2023 and negative surprises of the 4Q22 results season, some market relief may be in store. The Hammer candlestick pattern last Friday and the benchmark's undemanding CY2023 valuation (12.8x P/E vs. 10Y mean 16.8x) may boost the index to retest 1,475-1,500 barriers in the immediate term. However, an extended Wall Street decline, weakening RM amid uncertainty over a protracted Fed rate upcycle and widening FFR-OPR differential, as well as intensifying geopolitical tensions, could cap additional upside near 1,528 (6M high) to 1,542 (200W MA).

Source: Hong Leong Investment Bank Research - 27 Feb 2023