Market review

• The MSCI Asia Pac index rallied 1.8% to 127.8 (still 1.7% lower against pre-Brexit close of 130) amid overnight recovery in US and Europe market as well as Sterling as investors are optimistic that policy makers are committed to limit the fallout from the unprecedented UK’s move.

• After traded 12.8 pts within an intra-day high of 1643.3 and a low of 1630.5, KLCI staged a 2nd day rebound to close 8.2 pts higher at 1642.2, in tandem with recovery in regional markets. However, trading volume and value decreased 8.4% and 4.1% to 1.35bn shares worth RM1.54bn, respectively. Market breadth was positive with 463 gainers as compared to 302 losers.

• After plunging 871 pts in the last two sessions, the Dow rallied for a 2nd day with a 285-pt gain to 17695, helped by diminishing anxiety over Brexit amid speculation that major global central banks will engage in a more coordinated effort to mitigate the Brexit’s fall out. Sentiment was also driven by energy and material shares amid a 6.3% surge in WTI prices as US crude supplies continued to ease.

Technical Insights

• Strong undertone to support further upside

• Following the formation of bullish reversals hammer candlesticks and white candles coupled with strong close above 10-d/20-d/30-d SMAs, KLCI is poised to test 1650- 1664 (200-d SMA) upside targets, supported by upticks in technical oscillators,

• A decisive break above 1664 will spur the index higher towards more formidable resistances at 1670 (100-d SMA) and 1680 (38.2% FR) zones. Key support remains at 1612 (24 June low)

Market Strategy

• After a 2-day rout on 24 & 27 June, major markets staged a strong comeback as investors become more rational and see orderly conditions prevailing amid optimism that major central banks will commit to contain 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, ahead of the last day of 1H16 window dressing activities and overnight rallies in Dow and crude oil markets, KLCI is expected to trade higher today to test 1650, with supports at 1630-1636 levels.

• Stock on radar: SKPRES is ripe for a technical rebound amid its active volume of 2.7m shares yesterday and undemanding valuation of 9.4x FY18 P/E and 0.25x PEG. (see separate Trading idea report)

Source: Hong Leong Investment Bank Research - 30 Jun 2016