MARKET REVIEW

In spite of a 0.5% rebound in the SHCOMP to 2,890 (after hitting the 52-week and intra-day low of 2,837), major Asian markets closed mixed on Friday, tracking negative performance on overnight Wall Street on the back of escalating trade rhetoric between the US and its trading partners.

Bucking regional markets, KLCI halted its 9-day losing streak of 93.5 pts to inch up 1.8 pts higher at 1,694.2, buoyed by bargain hunting activities after a roller-coaster ride of 21.9 pts between an intra-day high of 1,700 and a low of 1,678. Market breadth was positive with 480 gainers as compared to 350 losers. WoW, KLCI tumbled 3.8% to post its 2nd weekly decline.

After plummeting 861 pts in eight straight sessions, the Dow jumped 119 pts or 0.5% to 24,581 last Friday, shrugging off jitters concerning trade tensions, boosted by rising energy shares following a 5.6% rally in WTI to USD69.2. To recap, OPEC and other major producers finally struck a deal over the weekend for a modest hike in effective production of around 600- 700k bpd, a relief to bullish traders who feared a more aggressive increase of over 1m bpd.

TECHNICAL OUTLOOK: KLCI

After hitting June’s high of 1,801 on 7 June, KLCI slid to a low of 1,678 on 22 June before staging a rebound to end at 1,694. Although the MACD indicator continued to expand negatively below zero, RSI and slow stochastic indicator are on the mend, signalling potential technical rebound this week after the emergence of small white candle. A decisive breakout above 1,700 psychological barrier, driven by potential mid-year window dressing activities will spur greater upside towards 1,707 (23.6% FR), 1,725 (38.2% FR) and 1,740 (50% FR) zones. Key supports will be located around 1,678, followed by 1,650.

After skidding 152 pts or 8.2% of 1,846 (GE14 eve) to 1,694, we opine that most of the external and internal risks have largely been priced in, reflected by KLCI CY18 P/E of ~15x (against 10Y average of 16.5x) and grossly oversold indicators. This week, KLCI may stage a technical rebound to retest 1,700-1,725 in anticipation of 1H window dressing activities, barring further escalation in US-China trade spats. We may witness active trading interests within bashed down telco (e.g. TM, Axiata, Digi) and banking (Maybank, CIMB) heavyweights. Also, we could anticipate higher trading activities on O&G stocks (e.g. Sapnrg, Velesto, Dayang, Hibiscus, Dnex) amid the rally in oil prices last Friday.

TECHNICAL OUTLOOK: DOW JONES

After nose-diving 996 pts or 3.9% from June’s high of 25,402 on 11 June to 24,406 on 21 June, the Dow staged a 174-pt or 0.7% technical rebound to end at 24,580 last Friday. Although the MACD indicator continued to expand negatively below zero, RSI and slow stochastic indicator are on the mend, signalling potential technical rebound this week after the bullish Harami pattern). A successful breakout above 24,659 (50d SMA) will spur greater upside towards 24,882 (mid Bollinger band) and 25,000 zones. Weekly supports will be located around 24,200-24,400.

We believe in the short to medium term, the Dow will face formidable resistances at 25,400- 25,800 as euphoria over synchronized global growth has effectively been replaced by the doom of synchronized global tightening, rising protectionism, and toppish global economic growth.

While there is little sign of an immediate slowdown in the US, some of the key market indicators such as the US Fed tightening, rise in risk aversion, and the US yield curve becoming flatter, are falling in place, bracing for more choppiness ahead for the Dow as the 3Q18 begins next week.

Source: Hong Leong Investment Bank Research - 25 Jun 2018