Market review

• The MSCI Asia Pac index rose 0.6% to 134.7, led by the NIKKEI 225 amid news that the BOJ meeting on 28/29 July may approve for sizable “helicopter money ” to spur domestic economy emerge from deflation and to fend off possible adverse effects from Brexit. Sentiment was also helped by better-than-anticipated US corporate earnings and economic data coupled with broad monetary easing by central bankers to ease concerns over global growth.

• Bucking regional markets, KLCI recorded its 3rd straight fall, sliding 12.1 pts at 1657.4 as sentiment was spooked by the revival of 1MDB drama following news that the US Department of Justice and authorities from Singapore and Switzerland have moved to seize over assets linked to 1MDB. Market breadth was bearish with 222 gainers as compared to 649 losers.

• After extending its winning streak for a 9th straight session, the Dow slumped 78 pts overnight, spooked by slower-than-expected earnings results from Intel, Southwest Airlines, Starbucks and American express. Sentiment was also dampened by ECB’s move to keep stimulus on hold as it would only consider adding fresh stimulus later this year when it has a clearer picture of the Brexit fallout.

Technical Insights

• Profit taking pullback to continue

• Following a sharp drop below the 200-d SMA (now at 1667) and 10-d SMA (1660) levels coupled with faltering technical indicators, the upward momentum could be temporary disrupted. A decisive fall below 1651 (mid Bollinger band) will trigger further selldown to lower support at 1639 (23.6% FR).

• Key resistances are situated at 1667 and 1684 (61.8% FR) levels.

Market Strategy

• Despite recent optimism of better-than-expected US economic data and results, hopes of more monetary and fiscal stimulus measures from policy makers and governments and expectations of more mega project rollouts by Malaysian government in the near term, KLCI may witness further profit taking consolidation as sentiment would continue to be dogged by the 1MDB saga following news that the US Department of Justice and authorities from Singapore and Switzerland have moved to seize over assets linked to 1MDB.

• We took profit on KUB (6.5% gains) after hitting R1 upside target.

Source: Hong Leong Investment Bank Research - 22 Jul 2016