Market Review

• The MSCI Asia Pac index grew 0.6% last Friday (still tumbled 2.9% wow) amid overnight 0.5% technical rebound on Dow following a dovish Fed outlook and after the tragic shooting of a pro-EU British law maker, Jo Cox which may sway public opinion towards the "Bremain" campaign. Tracking higher regional markets, KLCI jumped 9.3 pts to 1624.2. Unfortunately, the rebound was unable to arrest a weekly fall of 17 pts or 1% as sentiment was dampened by persistent “Brexit” fear, profit taking correction in oil prices, recessionary mode in the corporate earnings coupled weakening global economy.

• Meanwhile, the Dow resumed its fall on Friday with a 58- pt decline (-1% wow) on the heels of “Brexit” concern and Yellen’s downbeat assessment of U.S. economic prospects (in 14-15 June FOMC meeting) which could be a sign of a broader economic slowdown.

Technical Insights

• In the midst of correction

• On daily chart, a follow through oversold rebound may continue amid the white candlestick formation and mild signs of bottom up indicators. A decisive break above 1638 (10-d SMA) will see index go higher towards 1650 and 1663 (200-d SMA) levels. Supports are 1600-1613. Failure to hold at 1600 could see index lower towards 1570-1580 territories.

• On weekly chart, KLCI is likely to trap in rangebound consolidation within 1600-1656 (10-w SMA) territory. A decisive breakout above 10-w SMA will witness more upside towards 1680-1700 levels. Conversely, if the long term support trend line near 1540 is broken decisively, KLCI will experience further downfall towards 1500 zone.

Market Strategy

• KLCI may inch higher today, taking cue from a 4.2% relief rally in oil prices as well as BN’s pai r of by-election wins on 18 Jun with bigger majorities, helping PM Najib to solidify his grip on power after a year of political turmoil over 1MDB saga. Nevertheless, fears surrounding the “Brexit” referendum (23 June) and a holiday-shortened week (Nuzul Al-Quran 22 June) will cap any rebound beyond 1640 this week. Shoul d the outcome (by Fri day’s afternoon) favours “Bremai n”, KLCI may then witness frenzy buying interests to breach our weekly resistance beyond 1650.

• Technical speaking, the trend of KLCI continues to undergo a consolidation phase, with strong supports near 1600-1613. In the case of Brexit scenario, KLCI may breach 1600 and could drift to 1570-1580 territories.

• We highlight some water pipe makers today (FIG1) following an article on The Edge Weekly that these stocks look set to shine again amid positive news flow from the recent Asia Water 2016 conference.

• We also closed positions on GBGAQRS (0.5% loss) and IBHD (1.9% loss) on 17 June due to expiry (FIG6).

Source: Hong Leong Investment Bank Research - 20 Jun 2016