Market review

• After a 3.8% selloff on 24 June amid unprecedented vote by UK to leave EU, most Asian markets staged a mild technical rebound with the MSCI Asia Pac index gaining 0.4% to 125.8. Despite the rebound, overall markets remained unsettling as the rami fications of the unexpected result have been reverberating across the wider political and economic establishment .

• Tracking regional markets and shaky oil prices, KLCI lost 4.5 pts to 1629.5 after traded within a range of 13.8 pts between an intra-day high of 1632 and a low of 1618.3. Market breadth was negative with 295 gainers as compared to 457 losers. However, selling pressures tapered off as trading volume decreased to 1.27bn shares wort h RM1.3bn as compared to last Friday’s 2.23bn shares worth RM2.36bn.

• The unexpected Brexit’s fallout and downgrades by S&P and Fitch on UK sovereign ratings continued to trigger aftershocks in Wall St as the Dow slumped as much as 337pts before narrowing the loss to 260 pts to close at 17140, the lowest close since March.

Technical Insights

• Undertone remains weak

• The formation of two consecutive hammer candlesticks could indicate near term support of around 1600-1611 zones. However, weak oscillators are exerting pressures to the KLCI, signaling further volatility ahead. A decisive break below 1611 (24 June low) 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

• Although global markets have swiftly priced in Brexit impact since 24 June, KLCI may continue to exhibit volatility this week amid shaky performances in the global equities, commodities and currencies markets amid uncertain long-term risks such as (i) fragility of EU as a political union; and (ii) the rise of populism & nationalism. Sentiment will also be affected by tepid local corporate earnings, slowing domestic economy and uncertainties over the Federal Reserve’s monetary policy (although most likely to defer further towards end 2016).

• Ahead of the potential end June window dressing and commitment by major central banks to inject additional liquidity and maintain accommodative monetary policies, near term KLCI supports are likely to be supported at 1600-1611 while resistances remain at 1635-1642 levels.

• Stock on radar: EVERGRN remains one of HLIB institutional top export -oriented picks with target price of RM1.60 or 46.8% upside. (See separate report today)

Source: Hong Leong Investment Bank Research - 28 Jun 2016