Asian stocks were mostly lower as market were focusing on US-China trade discussions that will be taking place this week. The Nikkei 225 and Hang Seng Index declined 0.21% and 1.23%, respectively, while the Shanghai Composite Index gained 0.58% as MSCI announced that 234 China A shares will be included into its indexes on 1st of June.

Stocks on the local bourse managed to trade higher in the throughout the day and the FBM KLCI hit an intra-day high of 1,860.59 pts before closing lower by 2.22 pts to 1,848.20 pts on a last minute selldown. Market breadth has turned negative with 561 decliners vs 499 advancers on the second day of trading post election as profit taking activities emerged, accompanied by 4.31bn shares traded yesterday. Selected stocks such as Dialog, Yinson, My News and F&N within the O&G and consumer were bucking the trend for the session.

Dow tumbled 193 pts or 0.78%, snapping a 8-day winning streak, after strong retail sales data stoked inflation concerns and investors fretted about looming trade talks between the United States and China this week. The US 10Y yield rallied 0.077% to 3.07% (the highest in 7 years) while the USD index jumped 0.64% to 93.1.

TECHNICAL OUTLOOK: KLCI

After hitting a low of 1797 on 14 May, the FBM KLCI rebounded strongly to reach a high of 1876 on 14 May before easing 2.2pts yesterday, still standing comfortably above the 100d SMA or 1840 levels. Technical indicators remained positive to support KLCI for higher grounds, with key resistance near 1,880-1,890s. Meanwhile, support will be located around 1,835-1,840.

Despite the positive KLCI technicals, we think sentiment on the local bourse could still stay volatile pending more clarity on the cabinet line-up and anticipate more economic and fiscal policy changes, which will introduce short term uncertainties. At this current juncture, we think investors may continue to look into defensive (consumer and REITs) as well as export oriented stocks (amid stronger USD) for short term trading purposes.

TECHNICAL OUTLOOK: DOW JONES

Near term outlook for Dow has turned mildly negative after yesterday’s fall. A decisive selldown below 50d SMA or 24.4k will trigger further rout below 24k. Overall, we think the Dow may stay range bound over the near term with the resistance envisaged around 25,000 and the support will be pegged around 23,500.

In the US, we believe the market volatility is likely to remain with key focus now on the crucial US/China talk this week. On a separate note, markets have been pricing in for three more hikes in 2018, given fed-funds futures now show a 54% chance for hikes in June, September and December.

Steady earnings growth; Bottoming up. DNeXchange has won a sub-contract to provide e wallet service which may provide decent earnings over the next three years. Meanwhile, its energy segment may grow in tandem with the steadier crude oil outlook. We think the recent selldown could serve as an opportunity to accumulate, capturing the upside potential (RM0.425-0.465) over the near term. On the flip side, the support will be anchored around RM0.36-0.37. Cut-loss will be at RM0.34.

Source: Hong Leong Investment Bank Research - 16 May 2018