MARKET REVIEW

Asia’s stock markets remained in the negative territories with the intensified trade tensions after China retaliated against the tariffs hike made by Trump administration last Friday. To recap, Beijing announced that it will raise 25% on USD60bn of US products by 1st of June. The Shanghai Composite Index and Hang Seng Index fell 0.69% and 1.50%, respectively, while Nikkei 225 dropped 0.59%.

However, the FBM KLCI managed to pare down significant losses throughout the day as bargain hunting activities emerged after the key index hit the intraday low of 1,572.03 pts and closed near the 1,600 level at 1,599.19 pts. Market breadth was still negative with 488 decliners vs. 386 advancers. Market traded volume stood at 2.82bn (worth RM2.46bn). We observed that rubber related stocks such as Hartalega, Top Glove and Karex traded higher on the back of weakening ringgit.

As President Donald Trump provided a projection on the period (three to four weeks) Washington and Beijing could be locked in this trade negotiations, market participants turned slightly positive on Tuesday following a sharp decline on Monday. The Dow and S&P500 added 0.82% and 0.80%, respectively, while Nasdaq added 1.14%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI gapped down at the opening bell, but managed to recover from an intraday low of 1,572 pts and narrowed down the daily losses to close near the 1,600 mark. The MACD indicator still expanded negatively below zero, while RSI and Stochastic oscillators are improving near the oversold region. The resistance is envisaged around 1,644-1,658, while support will be set along 1,570-1,580.

Still, we believe the recent rebound is likely to be short lived as the uncertain trade developments could weigh on the stock markets, given the heightened tensions between the US-China over the recent trade discussions have ended with another round of retaliation. Should there be any negative headlines in the near term, it could pose downside risk towards the markets. Nevertheless, export oriented stocks are likely to stay focus on the back of weakening ringgit.

TECHNICAL OUTLOOK: DOW JONES

The Dow rebounded yesterday and crossed above SMA200, but the MACD Line is hovering below zero. Meanwhile, both the RSI and Stochastic oscillators have rebounded off the oversold region in the past session; suggesting that the technical rebound could sustain over the near term. Resistance will be located around 26,000, while support is pegged along 25,000.

Despite Wall Street managing to recover part of the earlier sharp losses, we believe the rebound would be short lived, given the trade tensions have escalated over the past weeks as China has retaliated with higher tariffs (effective 1st of June) recently. Market participants will be focusing a lot on President Trump’s comments and China’s reciprocal actions in order to further decide on investment decisions. The Dow’s resistance is located around 26,000.

Source: Hong Leong Investment Bank Research - 15 May 2019