Market review

• Asian markets inched up after a 2-day rout that wiped out as much as US$3 trillion of market capitalization in global markets following UK decision to exit EU on 24 June. There was optimism that policy makers are committed to limit the fallout from the unprecedented UK’s move.

• After t raded within a range of 14.9 pts between an intraday high of 1635.9 and a low of 1620.9, KLCI staged a technical rebound to gain 4.5 pts to close at 1634 after tumbling to a monthly low of 1612 on 24 June. Trading volume and value increased 16% and 23% to 1.47bn shares worth RM1.61bn, respectively. Market breadth was positive with 528 gainers as compared to 268 losers.

• After plunging 871 pts in the last two sessions, the Dow rebounded 269 pts to 17410, recouping some of thei r brutal losses following UK Brexit vote. Sentiment improved amid better-than-expected US 1Q16 final GDP data and June consumer confidence index as well as ECB’s President Mario Draghi statement that that there will be a more coordinated effort by policy makers to mitigate the Brexit repercussions.

Technical Insights

• Undertone remains weak

• The formation of two consecutive hammer candlesticks and a white candle yesterday could signal immediate term stability for KLCI after recent bashdown. This is also supported by steadier technical oscillators.

• A decisive break above weekly high of 1642 (23 June) will spur the index higher towards 1650-1664 (200-d SMA) zones. On the flip side, a decisive breakdown below 1612 will trigger further selldown towards 1600 territory.

Market Strategy

• After a 2-day indiscriminate selling, major markets returned to stability as investors become more rational and see orderly conditions prevailing amid optimism that major central banks will commit to contain the fallout from the unprecedented Brexit.

• Having said that, we still expect global markets to remain volatile in the near term and continue to be news-driven by the Brexit development as they grapple with the uncertainties surrounding contagion risks.

• On the local bourse, in anticipation of potential end June window dressing and overnight rebound in Dow and crude oil markets, KLCI is expected to trade higher today. Key supports are 1612-1630 while resistances remain at 1638- 1650 levels.

• Stock on radar: MBSB is ripe for a technical rebound amid its robust volume of 15.26m shares yesterday and steep valuation of 0.64xP/B. (see separate Trading idea report)

Source: Hong Leong Investment Bank Research - 29 Jun 2016