Market Review

• Asian markets ended mixed as sentiment was dampened by the selloff in China and HK technology companies after a U.S. probe of Huawei deepening fears that the sector could suffer further from an unresolved US/China trade tensions. Investors are also weighing that the repercussions of soaring interest rates will adversely impact global growth after the US 10-year bond yields hit 4-year high at 3.04%.

• Tracking the mixed overnight Dow and regional markets’ performance, KLCI snapped a 4-day cumulative loss of 43.3pts (from all-time high closing of 1,895.2 on 19 Apr) to inch up 0.34-pt at 1,852.3, after fluctuated within intraday high of 1,863.6 and a low of 1,846.5. Trading volumes increased to 2.05bn shares worth RM2.13bn as compared to Wednesday’s 1.87bn shares worth RM1.97bn. Market breadth was positive with 442 gainers as compared to 349 losers.

• Wall St ended higher on Thursday, with the Dow surged 238 pts or 1% to 24,322, while the tech-savvy Nasdaq rallied 1.6% or 115 pts to 7,118 amid strong results from a number of bellwethers, including Facebook, Amazon, AMD and Intel. Meanwhile, investors appeared to push aside nagging concerns over trade wars and the rising 10-year US bond yield (-0.04% to 2.98%), with focus on the latest run of earnings. So far, about 80% S&P 500 companies have beaten forecasts (1Q18 earnings is expected to surge over 20% YoY). Sentiment was also boosted by moderating weekly initial jobless claims and improving US durable goods orders coupled with narrowing deficit.

Technical View

Due for a mild rebound

• KLCI is expected to trap in sideways pattern in wake of weak technical oscillators. Any relief rally from oversold position is likely to be capped near 1,863 or mid Bollinger band levels. Only a decisive breakout above 1,863 will lift KLCI higher towards 1,875 (23.6% FR) and 1,895 zones while the support will be set around 1,840 (61.8% FR) and 1,833 (76.4% FR), respectively.

Market Outlook

• Dow outlook: In the US, we see an extended tug of war between ongoing earnings season and the extended worries over the rising yield environment coupled with trade war tensions. Technically, following an overnight 1% rebound, the Dow is poised for a downtrend line breakout towards 24.9-25.0k in the short term, after building a floor above 200d SMA near 23.8k.

• KLCI outlook: In tandem with overnight Dow rally, we believe severely oversold stocks could be due for technical rebounds after recent rout. Tracking strong rally in US tech stocks, recently bashed down Bursa-listed technology stocks could see active trading interests today such as UNISEM (RM2.02-HOLD), FRONTKN (non-rated), SKPRES (non-rated), INARI (RM1.94 - HOLD).

Source: Hong Leong Investment Bank Research - 27 Apr 2018