Market Review

• Although overnight Wall Street rebounded amid bargain hunting activities, Asian stocks were mostly mixed as trade war concerns were refraining investors to commit further into risky assets. The Hang Seng Index and Shanghai Composite Index declined 2.19% and 0.15% respectively, but the Nikkei 225 rose 0.13%.

• Meanwhile, stocks on our local front noticed a series of selling pressure as China fired back with new tariffs on 106 US products, including cars, whisky and soybeans. The FBM KLCI plunged near to 2% at 1,815.94 pts. Market breadth was extremely negative, there was 11 decliners for every one advancer on the broader market and market traded volumes was higher at 3.28bn, worth RM2.78bn.

• Despite the new proposed retaliatory tariffs by China on US products, the major indexes rebounded (after a steep selldown at the opening session) sharply as concerns eased off amid comments from Trump’s economic adviser Larry Kudlow said the administration was in a “negotiation” with China rather than a trade war. The Dow traded as low as 23,531 and ended higher at 24,264 (+0.96%).

Technical View

Violation of upward trendline, next support at 1,800

• With the trade war fears, the FBM KLCI has violated the trendline support near 1,850 yesterday, all the technical indicators such as MACD, RSI and Stochastics are pointing lower and it is likely to put pressure on any rebound in sight over the near term. The upper resistance will be located around 1,830-1,840, followed by 1,860, while the support will be located around 1,800-1,810.

Market Outlook

• Dow outlook: Although few Trump’s administration officials have come out to ease the situation by reiterating that they will continue to engage in discussions with China to address the trade issues, we think the volatility may revisit should there be any reciprocal actions done by the US or China. Hence the Dow could still trade within the range of 23,550-24,600.

• KLCI outlook: The strong rebound sentiment could spill over to Bursa Malaysia after FBM KLCI slumped near to 2% yesterday. However, under this cautious environment, we believe traders may take the opportunity to sell into strength ahead of the anticipated dissolution of parliament.

Source: Hong Leong Investment Bank Research - 5 Apr 2018