Market Review

• In wake of a 2.9% plunge in Dow overnight, the MSCI ASIA Pac (MXAP) index sank 4.7 pts or 2.6% to 171.97 (-3.46% wow) as investors ran for safe havens in bonds, gold and JPY as the US outlined plans to slap tariffs on Chinese imports (amounted at least US$60bn) and China also unveiled plans for reciprocal US$3bn of US imports. These raised fears that the looming trade turmoil between the world 1st and 2nd economic superpowers could stymie global trade and growth.

• Taking cues from sluggish Dow and regional markets, KLCI slid 11.7 pts or 0.62% last Friday but still ended 1% higher wow at 1865.2. Market breadth was negative with 190 gainers as compared to 827 losers while trading volume decreased to 2.09bn shares worth RM2.15bn compared to Thursday’s 2.29bn shares worth RM2.07bn.

• Following a 2.9% or 725 pts slump on 22 Mar, the Dow skidded another 424pts or 1.8% last Friday to end the week 5.7% lower at 23533 as concerns over the pains ahead for the U.S. economy if Beijing and Washington ramp up tit-for-tat trade penalties, largely shrugged off positive Feb durable goods order and Trump’s signing of a US$1.3 trillion spending bill that averted another government shutdown. Sentiment was also dampened by Bloomberg News cited China’s ambassador to the US saying that the country is “looking at all options” in response to tariffs, which could include scaling back purchases of U.S. Treasuries.

Technical View

Critical support trendline near 1848 to prevent more selldown

• The KLCI is currently testing the support trend line from 1796 (6 Feb) after failing to surpass the YTD high of 1880 (2 Feb) despite several attempts. Given the shockwaves in external markets and the imminent GE14 uncertainty, KLCI is expected to build a base near 1848 (support trend line and 61.8% FR). A decisive breakdown below 1848 will induce the next wave of selling towards 1828-1838 levels.

• Conversely, a push above last week high of 1877 would bode well for the index to retest 1880 and all-time high of 1896 (8 July).

Market Outlook

• Dow outlook: The Dow logged in its biggest weekly losses in over two years amid the dual threats to economic growth of a trade war and higher borrowing costs as Fed Chair Powell which provided a steeper outlook for hikes in the next couple of years. Sentiment was also shattered by Trump’s massive staff shakeup in March. The recent 11.5% correction from the all-time high at 26616 (26 Jan) suggested that the trend may be changing from up to down, compounded by the support trend line violation on 19 Mar and a close below multiple key SMAs supports . The next critical support lies near 23360 (9 Feb low/200d SMA). A fall below will accelerate further correction towards 22100-22600 territory.

• KLCI outlook: Tracking shaky external markets, the underlying market tone should stay cautious, reflected by the FBMSCAP (- 10.8% YTD) and FBMACE (-14% YTD) performances. Nevertheless, ahead of the upcoming GE14, severe downside risks on the KLCI is likely to be limited (+3.3% YTD), cushioned by index-linked supports on heavyweights by local institutions.

Source: Hong Leong Investment Bank Research - 26 Mar 2018