Market review

• On 24 June, Asian markets were shattered by the unexpected “Brexit” outcome as UK voted to quit the EU, with investors re-optimise their risk exposure by shi fting their portfolio from risky asset classes (i.e. equities & corporate bonds) to safe havens (i.e. gold, US$, yen, US T-bills & German bunds).

• Tracking bearish regional markets, KLCI plunged as much as 29 pts intraday to a low of 1612 before trimming the losses to 1634 at 5pm. WoW, KLCI still managed to inch up 9.9 pts or 0.6%, thanks to buying supports from local institutional funds ahead of the hal f-yearly window dressing activities.

• Tracking meltdown in global markets, the Dow plunged 610 pts or 3.4% last Friday to close at 17399, leading to a weekly loss of 275 pts or 1.56%.

Technical Insights

• Technical indicators are weakening

• The formation of hammer candlestick could indicate near term support around 1600-1612 zones but the bearish Marubozu pattern and deteriorating indicators are exerting pressures to the KLCI, signaling further wild swings in the near term. A decisive break below 1612 will spur more selldown towards 1600 psychological levels.

• Based on weekly chart, the critical support is situated near 1580 (support trendline since subprime crisis). Failure to hold at 1580 could see index revisiting 1500 territory.

Market Strategy

• In tandem with the routs in global markets and oil prices, KLCI may continue its volatility this week, as investors opt for sidelines until more clarity emerges. Sentiment will continue to be affected by local tepid corporate earnings, slowing domestic economy and uncertainties over the Federal Reserve’s monetary policy (although most likely to defer towards 4Q16).

• Ahead of the potential end June window dressing, near term KLCI supports are 1600-1612 while resistances remain at 1635-1642.

• We closed our position on ICON (lost 2.4%) on 24 June amid expiry.

Source: Hong Leong Investment Bank Research - 27 Jun 2016