Market Review

• Asian stock markets ended mixed after the Fed raised the interest rate for the first time in 2018 and traders were trying to digest the Fed’s new “dot-plot”. The Nikkei 225 climbed 0.99% led by mining and oil sectors, while Hang Seng Index and Shanghai Composite Index declined 1.09% and 0.52%, respectively.

• Meanwhile, heavyweights on the local front continue to outperform the market and lifted the KLCI above the 1,870 level at 1,876.87 pts (+0.59%) led by Maybank and Nestle. Generally, market breadth was negative with decliners outpaced gainers by a ratio of 7-to-5, accompanied by overall market volumes 2.29bn (RM2.07bn).

• Wall Street traded negatively after Donald Trump imposed up to US$60bn of new tariffs on imported China goods, which may trigger a trade war between the US and China, resulting in a slower global growth. The Dow and S&P500 plunged 2.9% and 2.5%, respectively.

Technical View

Recovering technical indicators

• The FBM KLCI has surged above the downward trendline and the MACD Indicator has formed a “buy” signal as the MACD Line crossed above the Signal Line. Also, we think the upward momentum is healthy as suggested by both the recovering RSI and Stochastics oscillators. Despite the negative overnight Wall Street, we think the downside is limited and the key index may revisit the resistance along 1,896. Meanwhile, support will be located around 1,860, followed by 1,840.

Market Outlook

• In the US, we think the huge volatility may persist over the near term on the resumption of the trade war tensions among investors. Also, traders are expecting China to react with a retaliation measures to Trump's tariffs. The full list of tariffs will be released within the next two weeks, this may curtail the trading interest and traders are likely to trade on a cautious tone. The next support on the Dow will be pegged around 23,350.

• Similarly, the negative sentiment could spillover towards Malaysia's stockmarket on the broader market, which small caps and lower liners could be seen as the target for reduction of equities’ exposure under this cautious environment. Nevertheless, as market is awaiting announcement of the GE14, downside on the heavyweights could be well cushioned on the back of buying support from local institution.

• Closed positions: We had squared off our positions in ENGTEX (2.8% loss) and YONGTAI (3.2% loss) yesterday amid expiry.

Source: Hong Leong Investment Bank Research - 23 Mar 2018