MARKET REVIEW

Despite less hawkish minutes by Fed that the central bank will not be too aggressive with raising interest rates, Asian markets were under pressure (led by South Korean and Japanese automakers) as investors cautious over trade-related developments after the U.S. Department of Commerce said it had started a probe into automobile imports. Meanwhile, geopolitical worries hovered over markets amid speculation that Trump would cancel the North Korea summit that is set to take place on 12 June in Singapore.

KLCI slid 28.6 pts or 1.6% to 1,775.6 after traded within a range of 41.7 pts between an intra day high of 1809.9 and a low of 1,768.2 amid nagging concerns over the mega national debt may trigger ratings downgrade and souring sentiment over the US-China trade talks. Sentiment was also dampened by rising scrutiny on the “insolvent” 1MDB saga. Market breadth was sluggish with 235 gainers as compared to 752 losers.

The Dow tumbled as much as 280 pts in the early trade amid sharp decline in energy-related shares as crude oil retreated from multi-year high and rising geopolitical worries after Trump called off a planned summit with North Korea’s, citing “open hostility” from the country. However, the Dow managed to narrow the losses to 75 pts at 24,811.75, boosted by the May FOMC minutes, as the central bank indicated it will not be too aggressive in raising rates.

TECHNICAL OUTLOOK: KLCI

After broken the vital 200d SMA support of 1,800, KLCI tumbled as much as 36 pts to a low of 1,768 (violated the 14 May low of 1,797 post-GE14) before mitigating the losses to 28.96 pts at 1775.6. Following the 3.8% plunge from 1,846 (pre-GE14 on 8 May), the MACD is turning increasingly negative, while the RSI and Stochastics oscillators are dipping further southbound. In wake of bearish indicators, we opine that the downside risk may persist over the near term. Immediate support is located at 1,750, followed by 1,737 (200w SMA). Should there be any technical rebound, the upside will be capped near 1,800-1,844 territory.

Given the persistent external threats from trade wars and the USD strength coupled renewed geopolitical tensions, Bursa Malaysia’s near term outlook remains challenging as traders may still be focusing on the ballooning national debts and anticipate the next action plan by Pakatan Harapan to resolve the debt status. Moreover, recent heightened concern over the 1MDB newsflows and the review of construction mega projects and toll concessions may dampen the overall trading sentiment.

TECHNICAL OUTLOOK: DOW JONES

Following the ongoing consolidation, the Dow managed to cover the recent gap and stayed higher above immediate support of 24.5k (38.2% FR), supported by still positive MACD and slow stochastics. We remain cautiously optimistic that the Dow may poise for a breakout above 25k after a short consolidation towards 25.5k.

On the back of renewed concerns over geopolitical events after the cancellation of North Korean summit and uncertainties in US-China trade negotiation coupled with the possible new tariffs into car imports, Dow’s near term outlook has turned cautious. Neverthelss, any downside will be cusioned by less-hawkish Fed minutes, reassuring investors that the central bank will not be too aggressive with raising interest rates.

TECHNICAL TRACKER: CLOSED POSITIONS

Yesterday, we had squared off our positions in ENGTEX (16.2% gain), ARMADA (4.3% loss), LAYHONG (4.2% loss) and MBSB (2.5% loss).

Source: Hong Leong Investment Bank Research - 25 May 2018