MARKET REVIEW

Asia’s key regional benchmark indices entered the negative territory on the back of trade worries, whereby Canada and US failed to reach an agreement after trade negotiations last week as well as investors were cautious on the US-China trade escalation this week. The Nikkei was down 0.69%, while Shanghai Composite Index and Hang Seng Index declined 0.17% and 0.63%, respectively.

Similarly, stocks on the local front were mostly beaten down amid the escalating concerns on the trade developments. Also, the FBM KLCI inched lower by 0.33% to 1,813.58pts. On the broader market, the decliners outpaced gainers by a ratio of more than 5-to-2. Despite the higher trading volumes at 2.65bn, traded values were softer at RM1.68bn as traders were focusing on small and mid-cap stocks.

European stocks ended mixed on the back of heightened trade worries as President Trump commented that he was prepared to slap the new tariffs on China goods as soon as the public comment period ends this week. The FTSE100 and CAC Index increased 0.97% and 0.13%, respectively, but DAX Index fell 0.14%.

TECHNICAL OUTLOOK: KLCI

Despite the negative closing over the past three trading days, the FBM KLCI managed to stay above 1,810 and the SMA200 level. The MACD indicator is still positive, but the Stochastic oscillator is still suggesting that the key index is overbought. Hence, we believe the upside will be capped along 1,820-1,825, while support will be pegged around 1,800-1,810.

On the local front, we expect the volatility to persist with a negative bias trading prior to the conclusion of the public comments over the near term. Also, we anticipate further selling pressure on small and mid-cap stocks as technicals in both the FBM Small Cap and FBM ACE are still weak at this juncture.

TECHNICAL OUTLOOK: DOW JONES

The Dow is hovering above the short term moving average of 10D SMA and we anticipate the short term uptrend is still intact, in tandem with the positive MACD Indicator. However, the Stochastic is overbought and it could suggest that the upside could be capped around 26,100- 26,200 levels. Support will be pegged around 25,500.

We anticipate that the cautious trading tone could be extended moving nearer towards the conclusion of the public comments by this week. If the USD200bn list is being implemented by the White House, it would be another major escalation on top of the current USD50bn exports from China and it could further dampen the trading tone on the stock markets.

Source: Hong Leong Investment Bank Research - 4 Sept 2018