MARKET REVIEW

Key regional benchmark indices traded significantly lower following the renewed trade concerns after Trump administration was looking at a possibility to impose a 25% tariffs on the USD200bn worth of Chinese products. The Shanghai Composite Index and Hang Seng Index dived 2.03% and 2.21%, respectively, while Nikkei 225 declined 1.03%.

Similarly, negative tone were noticed on the local stock exchange, resulting in a negative market breadth (up: 246, down: 658) and the FBM KLCI snapped an 8-day winning streak, declining 0.57%. Market traded volumes stood at 2.09bn, worth RM1.99bn. Nevertheless, selected technology-related stocks such as EG, MPI and GUH were traded higher.

Wall Street started on a weaker tone following the comments by Trump’s administration to potentially impose higher tariffs on Chinese goods, from 10% to 25%. Nevertheless, stocks markets managed to recoup earlier losses led by Apple after registering stronger-than expected earnings and traded to new high, marking the first US publicly traded company to reach USD1 trillion in market value.

TECHNICAL OUTLOOK: KLCI

After a long stretch of upward move, the FBM KLCI reversed near the SMA200 (1,797) level. The MACD Line is flattish, while the MACD Histogram continued to weaken further. Meanwhile, both the RSI and Stochastic oscillators are still overbought. With the technicals softening, we see limited upside on the FBM KLCI over the near term. The resistance will be pegged around 1,790-1,800. Meanwhile, the support will be anchored around 1,750-,1760.

After the 2-day positive inflow by the foreigners, an outflow of RM123.7m was noted on the back of profit taking activities in tandem with the regional markets amid resurfacing of fresh trade developments between the US and China. We see heightened volatility in the markets over the near term and the KLCI’s upside will be capped around 1,790-1,800.

TECHNICAL OUTLOOK: DOW JONES

Despite the negative start on the Dow, the key index managed to rebound above the SMA20 level, forming a hammer candle. However, the MACD Indicator is turning flattish over the past couple of days, while the RSI and Stochastic oscillators are on a downward path after the Dow stagnated near 25,500. Hence, the resistance will be located around 25,500. Support will be set around 25,000.

Despite all the concerns on trade fears, investors continued to scoop up shares with decent quarterly earnings such as Apple and Tesla, looking beyond a potential trade war, at least for the near term. Hence, we believe the Dow may be supported above 25,000 led by the recovery in stocks with stronger earnings.

Source: Hong Leong Investment Bank Research - 3 Aug 2018