MARKET REVIEW

Shares especially the technology stocks in the regional markets ended lower as investors remained cautious on the developments of Huawei restrictions and this has led China to rethink the economic relationship with the US. Also, trade tensions intensified as Treasury Secretary Steven Mnuchin commented that a trade negotiation has not been scheduled in the near term, which contributed to sell down in major benchmark regionally; the Shanghai Composite Index and Hang Seng Index declined 1.36% and 1.58%, respectively.

Similarly, stocks on the local front were broadly sold down and the FBM KLCI closed lower by 0.12% to 1,601.87 pts, despite rebounding from the intraday low of 1,589.79 pts. Market breadth was negative with losers led gainers by a ratio of 7-to-2, accompanied by trading volumes of 2.38bn, valued at RM2.11bn. Meanwhile, technology stocks were beaten down on the back of the Huawei incident.

Trade tensions between the US and China, coupled with the US blacklisting on Huawei continues to weigh on the stock markets. Following a series of breakdown in the technology value chain, market participants are worried over a potential slowing economy which has led to another round of selloffs in equities; the Dow and S&P500 declined 1.11% and 1.19%, respectively, while Nasdaq lost 1.58%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI has trended lower for the session and the MACD Line is hovering below zero. Meanwhile, both the RSI and Stochastic oscillators are still below 50; suggesting that the negative momentum is still intact. KLCI’s upside will be limited around 1,612-1,630, while support will be anchored around 1,580.

With the escalating trade concerns between the US and China as well as the ongoing Huawei ban, we believe it may pose further downside risk towards the stock markets, especially amongst the technology stocks. Meanwhile, the negative sentiment could spillover to the broader market as investors may keep lower stocks exposure over the near term. Nevertheless, we opine that the weaker ringgit mood may lift export-oriented such as gloves sector at least in the near term.

TECHNICAL OUTLOOK: DOW JONES

After forming a flag formation earlier this week, the Dow trended lower, revisiting the SMA200 for the second time within the past two weeks. The MACD indicator declining, while both the RSI and Stochastic oscillators are hooking downwards. Hence, with the negative technical readings on most of the indicators, the Dow could trade on a downward bias mode over the near term. Resistance will be located around 25,500-26,000. Support will be set along 25,000- 25,434 (SMA200).

In the US, investors are watching closely on the trade progress as President Trump provided the 3-4 weeks’ timeline on a potential conclusion towards the trade discussions earlier on. Furthermore, the next major event that traders could be watching will be the G20 summit during end-June. Hence, should there be any negative surprises on the trade front, market could face with further downside risk. The Dow’s support is currently located around 25,000.

Source: Hong Leong Investment Bank Research - 24 May 2019