MARKET REVIEW

Despite positive close on SHCOMP (+1.3%) and HSI (+0.7%), most Asian markets ended mixed amid lingering concerns over the US-China trade negotiation on 14-15 Feb. Any agreement before 1 March deadline, or a simple extension of the truce, will be viewed as a positive for markets. On the contrary, markets are likely to slump as the US is expected to raise import taxes from 10% to 25% on USD200bn in Chinese goods.

Tracking lower Dow last Friday amid US-China trade jitters, KLCI dropped as much as 4.9 pts to 1681.6. However, it managed to stage a rebound to end firmer by 2 pts at 1688.6, in line with the recovery in China and Hong Kong markets. Trading volume increased to 2.58bn shares worth RM1.66bn as compared to Friday’s 2.48bn shares worth RM1.72bn. Market breadth was positive with 489 gainers against 351 losers amid active buying interests in small caps (FBM Small Cap +0.97%) and ACE counters (FBMACE +0.62%).

The Dow slipped as much as 97 pts to 25009 before narrowing the losses to 53 pts at 25053, recording its 4th straight decline. Overall, Wall St continues to waver as investors focus on another round of US-China tariff negotiations in Beijing this week and the threat of another partial government shutdown loomed coupled with a diminished 2019 earnings outlook.

TECHNICAL OUTLOOK: KLCI

After hitting YTD high of 1706 on 28 Jan, KLCI has been trending sideways with immediate support near 1680 (50d SMA). A close below 1680 would likely suggest that the next wave down is underway with lower targets at 1666 (50% FR) and 1656 (61.8% FR). A breakdown below 1656 will witness the next leg down testing 1626 (18 Dec low). Conversely, if the downtrend line near 1700 is taken out decisively in the near term, then a temporary climb to test 1710 (100D SMA) and 1747 (200-day SMA) may be next.

KLCI could remain choppy ahead of the resumption of US-China trade talk in Beijing on 14-15 Feb. Also, sentiment is likely to engage in a cautious tone as February reporting season begins, which is unlikely to provide excitement to the market. Meanwhile, the impending Malaysia 4Q18 GDP release (14 Feb) is also on top of investors' radar (Consensus 4.5%; 3Q18:4.4%). Key resistances are pegged near 1700/1710 while supports are set at 1680/1666 levels.

TECHNICAL OUTLOOK: DOW JONES

The Dow continued its uptrend above the 20D SMA (24754) but the momentum is weakening after logging a 4th straight decline. Given the negative technical readings, the Dow is likely to engage in a range bound consolidation in the near term with key supports fall on 24500-24700 while stiff resistances are situated at 25500/25800.

Following the 4-day decline on Dow, near term undertone has turned mildly negative. Overall, Wall St is likely to extend its consolidation mode for a while to price in the uncertainty around US-China trade relations and the growing worries over the global economy coincide with a deteriorating earnings outlook for 2019, as consensus S&P 500’s EPS growth have shrunk to below 1% from around 5% at the start of the year.

Source: Hong Leong Investment Bank Research - 12 Feb 2019