Review

• The MSCI Asia Pac index eased 0.1% to 129.58 yesterday after rising three straight sessions as sentiment turned edgy ahead of the crucial Brexit vote today (outcome to be known on 24 June morning).

• Bursa Malaysia was closed yesterday on observance of the Nuzul Al-Quran holiday. On Tuesday, KLCI rose for the 3rd straight session, in line with overnight gains in Dow and rebound in oil price. However, market breadth was mixed with gainers (371) slightly edging losers (370).

• Overnight, the Dow jumped as much as 90 pts in the early session, taking cue from a strong US May existing home sales and Yellen’s 2nd day of Congressional testimony that the U.S. economy is improving in the 2Q16 and she is “hopeful” t here will be a commensurate pickup in job growth. However, the Dow gave up the entire gains and lost 49 pts to end at 17781 as investors remained anxious ahead of the Brexit vote.

Technical Insights

• Signs of bottoming up with immediate resistances at 1640-1650

• On daily chart, a follow through oversold rebound may continue in the near term as index managed to end above 10-d/20-d/30-d SMAs, supported by bottoming indicators.

• A decisive break above 1640 (23.6% FR) will see index moving higher towards 1650 and 1663 (200-d SMA) levels. Formidable resistances are 1685 (61.8% FR) and 1700 psychological barrier.

• Immediate support is situated around 1613 levels. Failure to hold at 1613 could see index drifting lower towards 1590-1600 territory.

Market Strategy

• In tandem with lackluster performance in Dow overnight and regional markets yesterday coupled with a retreat in oil prices, KLCI may ease on mild profit taking ahead of the Brexit referendum following a 24-pt rebound in the last three sessions.

• Should the outcome favour “B remain”, KLCI may then witness more frenzy buying interests to breach our weekly resistance 1650 and marching towards 1685-1700 levels. In the case of Brexit scenario, KLCI may falter again to retest YTD low of 1612 (16 May). A break below 1612 could sway the index towards 1590-1600 territory. We recommend Trading BUY on BJFOOD today. (see our separate Trading idea report)

Source: Hong Leong Investment Bank Research - 23 Jun 2016