MARKET REVIEW

Led by a 1.53% slump in SHCOMP, Asian markets were broadly lower after a slew of economic data (eg Nov industrial production and retail sales) from China that missed expectations, deepening worries about headwinds facing the world's second largest economy. Sentiment was also weighed by unresolved US-China trade negotiations and ahead of the FOMC meeting 19-20 Dec (Malaysia time).

Tracking sluggish Asian markets, KLCI slid 14 pts to 1662 (-1.07% WoW), spearheaded by selldown in IHH, TENAGA, PBBANK, MAYBANK and PETGAS. Trading volume decreased to 1.50bn shares worth RM1.38bn as compared to Thursday’s 1.57bn shares worth RM1.65bn. Market breadth was negative with 242 gainers as compared to 541 losers.

Despite pledges by China to suspend a series of tariffs on US-made automobiles and parts for three months effective 1 Jan and China’s first major purchase of U.S. soybeans coupled with a strong U.S. Nov retail sales, the Dow plunged 497 pts, or 2.2% at 24100.51 (-1.19% WoW and -10.6% from all-time high of 26952). Sentiment was dampened by weaker-than-expected economic data released from China and Europe (Markit’s PMI showed German and France private sectors slowing sharply in November), sparking fresh worries about the prospects for global growth ahead of the widely watched FOMC meeting on 19-20 Dec (widely expected to raise rates by 25 bps).

TECHNICAL OUTLOOK: KLCI

After staging a technical rebound from a fresh 52W low at 1652 (11 Dec) to a high of 1678 (13 Dec), KLCI surrendered 14 pts to 1662 last Friday, accompanied by easing technical momentum and trend indicators. In wake of last Friday 497-pt rout in Dow, we opine that the index could trend lower to retest 52W low of 1652, 1644 (weekly lower Bollinger band) and 1614 (14 Nov 2016) levels, which could attract bargain hunting activities during the window dressing period. Near term resistance will be located around 1680 (downtrend line), 1692 (30d SMA) and 1700 psychological barrier.

On the local front, we anticipate that the cautious and lacklustre buying interest to prevail in view of external headwinds (eg trade tensions and political uncertainty, intensifying worries of global economic outlook, and monetary policy normalization by central banks) and internal clouds surrounding the slowing corporate earnings, compounded by weak crude oil and FCPO prices. Major supports are set at 1614-1652 whilst resistances are near 1680-1700.

TECHNICAL OUTLOOK: DOW JONES

After hitting a 7M low at 23881 on 10 Dec, the Dow staged a technical rebound to a high of 24828 on 12 Dec but strong profit taking witnessed a 730-pt slump to end at 24100 last Friday. With the weakening technical readings and the failure to clear its 20D SMA (24830), we anticipate that the Dow is firmly on a downtrend channel to retest 23881 and 23345 (52w low) over the near term. A strong breakout above 24830 will lift the Dow towards 25000 and 25560 (upper Bollinger band) territory.

In US, wild swings could remain over the near term with a myriad of factors, ranging from a global trade war between the US-China, concerns about a possible global economic slowdown over the coming months and monetary normalisations by central banks. All eyes are focusing on the upcoming FOMC meeting as the outcome of the events will be affecting markets’ tone significantly, with the Fed widely expected to raise rates by 25 bps and reduce the quantum of hikes in 2019 (from a scheduled 3 hikes).

Source: Hong Leong Investment Bank Research - 17 Dec 2018