Market review

• The MSCI Asia Pacific Index slid 0.55% to 133.98, paring its weekly gains to 0.23% as most Asian markets retreated from an 8-month high following lack of stimulus measures from ECB meeting last week and ahead of the key central bank outcomes from Fed (28 July) and BOJ (28/29 July). Overall, central banks have mostly avoided action since Brexit vote, calming jittery markets with verbal assurances but leaving the burden on governments to chart a growth path.

• Tracking lower regional markets and the revival of 1MDB saga, KLCI fell as much as 5.6 pts intraday before closing flat 1657.4. WoW, the KLCI dropped 11 pts or 0.66%. After a knee-jerk selloff on Thursday following news that the US Department of Justice and authorities from Singapore have moved to seize over assets linked to 1MDB, trading volume and value slid further by 24% and 17% to 1.38bn shares worth RM1.41bn. respectively.

• After a 78-pt dip on Thursday, the Dow soared 54 pts to record its 9th gains out of 10 sessions, and up 0.3% wow to chalk up its 4th weekly gains. The positive close was driven by better-than-expected preliminary US 2Q16 GDP and a slower-than-expected decline in ongoing 2Q16 corporate earnings report card (now forecast to dip 3% vs -4.5% drop in early July).

Technical Insights

• Volatility ahead

• Following a 3rd straight consecutive decline and easing below the support-turned-resistance at 1664 (9 June high), 200-d SMA (1667) and 10-d SMA (1661) levels coupled with faltering technical indicators, the upward momentum could be temporary disrupted.

• A decisive fall below 1652 (mid Bollinger band) will trigger further retracement to lower supports at 1639 (23.6% FR) and 1628 (lower Bollinger band). Key resistances remain at 1667, 1670 (50% FR) and 1684 (61.8% FR) levels.

Market Strategy

• Ahead of the FOMC and BOJ meetings, KLCI may slip further on profit taking as sentiment would be dented by potential fall in Ringgit (vs US$) amid nagging concerns on 1MDB, heightened terrorism in Malaysia (following the capture of fourteen IS suspects over the weekend) and expectations of another lackluster Aug reporting season.

• Despite the negatives, there are optimism of better-thanthan expected US economic data and results, hopes of more monetary and fiscal stimulus measures from policy makers as well as expectations of more mega project roll - outs by Malaysian government to stimulate slowing economy. We remain hopeful that KLCI is able to defend the 1628-1640 supports in the short term

Source: Hong Leong Investment Bank Research - 25 Jul 2016