Market review

• Despite downbeat econmic data from China and Japan, the MSCI Asia Pacific Index gained 0.6% last Friday to 129.6 as most Asian markets regained momentum following an unexpected UK’s Brexit vote last week. The index rallied 3.5% wow as sentiment was boosted by speculation that the Fed will back away from raising rates. Both the BOE and ECB also signaled further monetary easing and stimulus measures to shield economic fallout.

• Bucking higher regional markets, KLCI lost 7.9 pts to 1646.2 on profit taking amid post window-dressing blues and ahead of the long Raya holidays this week. This was after a sharp rebound from a low of 1611.9 (24 June) to a high of 1654.3 (1 July). Trading volume and value slipped 23% and 43% to 1.13bn shares worth RM1.13bn, respectively. Despite the decline, KLCI was still up 12.2 pts or 0.74% wow.

• Despite a strong US manufacturing data in June, the Dow’s upward momentum has reduced on profit taking as the index only inched up 19 pts after rallying 590 pts in three straight session and ahead of the long weekend holiday for US Independence Day (4 Jul ). WoW, the Dow soared 549 pts or 3.2% to 17949.

Technical Insights

• Mild consolidation

• Despite the small decline last Friday, we remain positive that the KLCI may resume its uptrend after a brief consolidation, unless the index closes below the downtrend line near 1635 (30-d SMA) again.

• A decisive break above last week high of 1654.3 will spur KLCI higher to retest 1665 (200-d SMA), 1670 (100-d SMA) and 1685 (61.8% FR) zones. On the flip side, short term supports are 1640 (23.6% FR) and 1635. A break below 1635 will trigger a renewed selldown towards 1612 and 1600 psychological levels.

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 on signs that global central banks will act to avoid economic contagion from the unprecedented Brexit referendum. Having said that, we still expect global markets to remain volatile in the near term as investors grapple with Brexit domino impact, anemic global economic growth, rising terrorism risks and potential EU break-up.

• In a holiday-shortened week (hal f-day trading on 5 Jul and Raya holidays on 6 & 7 Jul), KLCI is likely to consolidate its recent gains amid lackluster trading activities. Hence, we had closed our position last Friday (kindly refer FIG5) on MYEG (lost 3.9%) due to expi ry as well as took profits on MBSB (5.6% gain), SKPRES (5.2% gain) and BJFOOD (5.3% gain).

Source: Hong Leong Investment Bank Research - 4 Jul 2016