MARKET REVIEW

Asia/US. Although US regulators announced plans to backstop depositors and provide new lending programs to financial institutions, most Asian markets ended lower as investors grappled with the fears of a systemic issue plaguing the entire banking system following the SVB crisis. In contrast, Chinese indexes outperformed as the government promised more support for the economy, by keeping the central bank governor and finance minister in their posts. Ahead of the Feb CPI print tonight, the Dow slipped 90 pts to 31,819 (its 5th straight decline totalling 1,612 pts) while many regional banks’ (e.g. First Republic Bank, Western Alliance Bancorp and Metropolitan Bank) share prices also slid despite efforts by US regulators to provide a series of emergency liquidity measures to avoid a large-scale bank run. Meanwhile, US10Y Treasury yield fell 13 bps to 3.57% while the Nasdaq 100 jumped 0.8% at 11,923 as investors weighed the concerns of a contagion spread throughout the banking sector may prompt the Fed to pause on 22 Mar FOMC decision.

Malaysia. Tracking bearish regional markets, KLCI gapped down as much as 23.1 pts to 1,410 before cutting its losses to 11.3 pts at 1,421.8, led by selloff on MAXIS, MRDIY, TENAGA, AXIATA and TM. Market breadth ticked up to 0.36 from 0.34 the day before. Local institutions (+RM24m, Mar: +RM726m) emerged as the only net buyers whilst retailers (-RM11m, Mar: +RM12m) joined foreign investors (-RM12m, Mar: -RM738m, 9th day of Net Selling) as the Major Net Sellers.

TECHNICAL OUTLOOK: KLCI

After sliding 5.3% from YTD high of 1,502 (25 Jan), KLCI is grossly oversold and is poised for a technical rebound soon, encouraged by the Hammer candlestick formation. Lower supports now are situated at 1,390-1,400-1,410 whilst a cluster of hurdles are pegged at the 1,423-1,433 gap, followed by 1,444, 1,460 (20D MA) and 1,469 (200D MA) zones.

MARKET OUTLOOK

Technically, KLCI is likely to witness an oversold rebound soon following the Hammer candlestick formation. Nevertheless, the road ahead remains rocky and any rebound could be capped at 1.433-1,444-1,469 zones as investors assess (1) extended correction on Wall Street amid Fed’s hikes uncertainty, the health of the US banking sector and corporate earnings, (2) persistent net foreign outflows (7th consecutive month totalling RM5.16bn), (3) weak RM (vs USD) due to widening FFR-OPR spread, (4) escalating geopolitical anxieties, and (5) upcoming UMNO elections on 18 Mar and the six states’ elections (expected by 3Q). Given KLCI's undemanding CY2023 12.8x P/E (vs. 10Y mean 16.8x) and oversold readings, downside risk may be cushioned at 1,390-1400-1,410 zones.

Source: Hong Leong Investment Bank Research - 14 Mar 2023