Market Review

• Asian bourses rose last Friday as investors’ concern over geopolitical risks in Korean Peninsula eased following the historic summit between North and South Korean leaders. Sentiment was also boosted by gains on the overnight Dow amid consensus-beating corporate results and optimism on this week’s trade talks between the U.S. and China in Beijing.

• Tracking positive Dow and regional markets, KLCI rallied 11.2 pts or 0.6% last Friday, but still dropped 24.3 pts WoW on profit taking after closed at historical high in the previous week. Trading volume decreased to 1.63bn shares worth RM1.87bn as compared to Thursday’s 2.05bn shares worth RM2.13bn as most investors were sidelined ahead of the polling date on 9 May.

• After surging 238 pts on Thursday, the Dow moderated 11 pts on profit taking to 24,311, recorded a weekly drop of 151 pts. Overall, sentiment was cautious as investors were preoccupied by fears of growing signs of a peak in the cycle and against a backdrop of rising rates, outweighing the catalysts of both a solid earnings season and easing geopolitical tension. On FOMC meeting, the Fed is not expected to hike rates at the conclusion of its two-day policy meeting on 3 May (Malaysian time) and may focus on the post-meeting statements for hints on how it views inflation and the economy.

Technical View

Upside may be capped near 1876 levels

• As anticipated, KLCI closed near our envisaged mid Bollinger band target last Friday. Given the improving technical oscillators, further strong breakout above 1,863 KLCI is likely to spur index higher towards 1,876 (23.6% FR) and 1,880 zones. Weekly supports are 1,853 (50% FR) and 1,843 (61.8% 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 nagging trade war tensions. Despite a flat closing last Friday, 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: On a holiday-shortened week (Labour Day holiday on 1 May), we still believe the severely oversold lower liners could be due for technical rebounds after recent routs. For the main benchmark index, it could advance further but any upside is likely to be capped near 1,876- 1,880 territory ahead of the polling date on 9 May.

Source: Hong Leong Investment Bank Research - 30 Apr 2018