MARKET REVIEW

Asian stock markets traded mostly lower amid heightened concerns about the trade tension between the US and China. The uncertainty over the trade spats between both nations sent markets on a negative roller-coaster ride last week. The Nikkei 225 fell 0.79%, while Hang Seng Index and Shanghai Composite Index delinked 1.29% and 1.04%, respectively.

Meanwhile, the FBM KLCI trended mostly in the red throughout the trading session and further intensified in the final minute led by CIMB (-7.1%), AXIATA (-4.7%) and MAYBANK (- 1.2%). Market breadth was also negative with a ratio of 5-to-3, accompanied by overall traded volumes of 2.04bn (worth RM1.97bn). Despite the drop in FBM KLCI, sub-indices such as technology (+0.3%), properties (+0.4%) and plantations (+0.6%) traded higher.

Wall Street tumbled as escalating trade dispute between the US and China was clouding the market environment, coupled with the news that the US could prevent companies that had at least 25% Chinese ownership from buying businesses that possessed “industrially significant technology, contributing to the fall in Dow and S&P500 by 1.33% and 1.37%, respectively, while Nasdaq dived 2.09%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI resumed the downtrend yesterday forming a bearish candle and we noticed the MACD indicator is expanding negatively below zero. However, RSI and Stochastic oscillators are suggesting the key index is oversold. Although the oscillators are suggesting a potential rebound, the technical rebound could be weak and capped along 1,707-1,725. On the flip side, if the support of 1,678 is broken, next support will be envisaged around 1,651.

On the local front, trading tone could stay negative, tracking the overnight Wall Street performances. However, with the oversold indicators, we think the key index could be due for a technical rebound, in tandem with the 1H window dressing activities. We may anticipate short term trading interest within the telcos, banking heavyweights and oil and gas stocks.

TECHNICAL OUTLOOK: DOW JONES

After the retracement phase from the recent peak of 25,402, it could be supported near the SMA200 level, coupled with the rebound near the lower band of the symmetrical triangle formation. The MACD Line has crossed below zero. Meanwhile, both the RSI and Stochastic oscillators are within the oversold region; indicating that the Dow could be due for a technical rebound. The resistance will be located around 24,500, while the support will be at 24,000.

While we think the selling pressure on Wall Street may continue, the White House trade adviser, Peter Navarro has commented on the US trade policy, indicating that a Treasury Department report later this week on American restrictions on Chinese investment will not be as damaging as expected by the investors. Hence, the near term downside of the Dow could be limited near the 24,000. Nevertheless, Wall Street is likely to trend sideways with downward bias view as there is minimal positive impetus to lift the market higher with the ongoing trade concerns.

Source: Hong Leong Investment Bank Research - 26 June 2018