MARKET REVIEW

Asia/US. Asian bourses ended lower, in the wake of the hawkish pivot from Powell’s congressional testimony as he raised the possibility of the Fed to embark larger and longer rate hikes to combat sticky inflation in response to recent strong data. Now, the odds of a 50 bps hike at the 22 Mar FOMC meeting soared to nearly 71% from 24% a day earlier. Dow reduced an early 244-pt loss to -58 pts at 32,798 as Powell wrapped up his 2nd day of congressional testimony, reiterating that the Fed will continue to monitor incoming data as they head into the FOMC meeting on 22 Mar. The latest ADP and JOLTs Job figures report showed a still-tight US labour market, underpinning convictions that the Fed’s monetary policy tightening may be far from over. Meanwhile, the 10Y-2Y US yield spread inverted further into -1.07 (the deepest inversion since Oct 1981), intensifying the fears of a looming US recession.

Malaysia. In line with the depressed Wall St overnight, KLCI lost 4 pts to 1,454.7, as the mood was soured by persistent foreign selling and lingering worries that higher and longer Fed rate hikes will dim the global growth outlook and may even tip the US economy into recession. Market breadth fell further to 0.59 from 0.89 the previous day. Local institutions (+RM70m, Mar: +RM555m) and retailers (+RM26m, Mar: -RM28m) emerged as the main net buyers, while foreign investors (-RM96m, Mar: -RM527m) maintained their selling spree for the sixth session in a row.

TECHNICAL OUTLOOK: KLCI

In view of grossly oversold technical readings coupled with the multiple long-legged Doji and Hammer formations, KLCI is poised for a downtrend reversal. The benchmark will move higher towards the 1,500-1,528 zones if it successfully breaks above the near-term barriers at the 200D MA (1,470), 50D MA (1,478) and 1,491 (23.6% FR) levels. On the other hand, a further decline below 1,444 (1 Mar low) may entice stronger selling pressure in the direction of the 1,410–1,432 zones.

MARKET OUTLOOK

In anticipation of the BNM's OPR ruling today, KLCI is likely to stay choppy as it tracks an extended downbeat sentiment from Wall St. Due to KLCI's undemanding CY2023 12.8x P/E (vs. 10Y mean 16.8x) and its wildly oversold technical indicators, downside risk is probably cushioned near 1,430-1,440 zones. On the upside, the index could encounter significant resistance on the upside at 1,471-1,478-1,490 levels, taking cues from persistent net foreign outflows (7th consecutive month), the weak RM (vs USD) because of worries about a higher and longer Fed rate upcycle and a widening FFR-OPR spread, as well as escalating geopolitical anxieties (e.g. Russia-Ukraine war and US-China ties).

Source: Hong Leong Investment Bank Research - 9 Mar 2023