MARKET REVIEW

Market sentiment turned negative after the positive opening bell in most of the Asian stock markets as investors digested new trade developments after the Trump administration intends to propose a larger 25% tariffs on USD200bn worth of China products. The Shanghai Composite Index and Hang Seng Index declined 1.81% and 0.85%, respectively, but Nikkei 225 added 0.85%.

Bucking the regional trend, the Malaysia’s stock market closed in the positive territory with the return of foreign buying interest. Overall market breadth was slightly positive with 449 advancers vs 432 decliners, accompanied by 2.33bn shares (vs 2.71bn on Tuesday) yesterday.

Wall Street ended mixed as selling pressure on the broader market persisted amid renewed worries on trade developments. The Dow and S&P500 dropped 0.32% and 0.10%, respectively, but Nasdaq gained 0.46% led by Apple after stronger-than-expected results. Meanwhile, the Fed’s kept the monetary policy unchanged after the FOMC meeting.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI ended higher to mark the 8th consecutive day of gains and it is approaching the significant resistance at 1,797 (SMA 200). The MADC Line is hovering above zero, but the MACD Histogram is still on a weakening path. Meanwhile, both the momentum oscillators are overbought and could indicate that the KLCI’s upside may be limited. Further resistances will be envisaged along 1,800-1,810, while support will be pegged around 1,750-1,760.

With the two-day inflow of foreigners on the local front, coupled with the anticipation of positive outcome from the Chinese Foreign Minister’s visit to Malaysia, we opine that further upside should be seen over the near term. Nevertheless, upside is likely to be limited near the 1,790- 1,800 as most of the momentum oscillators are suggesting overbought in the key index.

TECHNICAL OUTLOOK: DOW JONES

The Dow trended sideways over the past few trading days, hovering slightly below the 25,500 level. The MACD Line is trending higher above zero, but both the momentum oscillators (RSI and Stochastic) are falling from the overbought region. With the softening of technicals, we think the upside could be limited, at least for the near term. Support will be pegged around 25,000, followed by 24,500.

In view of the renewed concern over trade developments between the US and China, we think the market volatility could extend over a longer period, unless positive news flow on the trade discussion resurfaces. The current sentiment is still neutral as the impact of fiscal stimulus and strong economic data as well as strong earnings from selected US corporate managed to cushion the downside risk, at least for the near term.

Source: Hong Leong Investment Bank Research - 2 Aug 2018