Market review

• With the ongoing trade spat between the US and China as China announced that it was implementing tariffs on 128 types of US products starting Monday, market took a slight beating and ended slightly lower. The Shanghai Composite Index declined 0.16%, while Nikkei 225 fell 0.31%.
• Similarly, tepid trading interest was noticed on Bursa Malaysia following the reply from China on the tariffs moves by the US. The FBM KLCI ended lower at 1,858.35 pts (-0.27%), accompanied by overall trading volumes of 2.08bn, worth RM1.64bn (as stocks below RM1.00 was actively traded). Nevertheless, some of the gainers include gloves related stocks such as Top Gloves and Hartalega.

• Wall Street traded lower following China’s retaliatory move, slapping tariffs on US products. This has caused another round of sell down within the stock exchanges, hitting tech stocks badly and Nasdaq declined 2.74%, while the Dow and S&P500 fell 1.90% and 2.23%, respectively.

Technical View

Hovering sideways along 1,860

• Following the selldown in Wall Street, the FBM KLCI may not be as bullish for the moment. Most of the technical indicators are suggesting mixed signals after yesterday’s drop below the 1,860 level. We think the near term resistance will be located around 1,876, while should the key index violates below 1,850, next support will be 1,840.

Market Outlook

• Dow outlook: We think market sentiments could stay negative amid the trade war tensions and market participants are likely to further reduce their positions in equities and search for safe haven assets such as US 10 year bond, gold or Japanese yen.

• KLCI outlook: Tracking the softer Wall Street performance, we anticipate selling pressure may pile up on the local bourse, resulting in further sell down on FBM Small Cap and FBM ACE. Also, we think investors may opt for defensive stocks such as consumer and REITs over the near term.

• Closed positions: We had squared off our remaining two positions in 1Q18 quarterly stockpicks due to expiry ie BJFOOD (2.2% loss) and LAYHONG (2.5% loss). Due to weakening technicals, we also closed our Trading Idea stock picks i.e. KPJ (6.4% loss), COMFORT (5.7% loss) and ROHAS (5.2% loss).

Source: Hong Leong Investment Bank Research - 3 Apr 2018