MARKET REVIEW

Overall, Asia’s stock markets sentiment were dragged by the renewed trade tensions between the US and China following President Trump’s tariff threat last week, coupled with the unrest in Hong Kong, which contributed towards several business disruptions in the city; the Hang Seng Index dropped 2.85%, while Shanghai Composite Index ended lower by 1.62%, accompanied by a depreciation of China yuan towards above the RMB7/USD level.

Meanwhile, stocks on the local front splashed in the red as the FBM KLCI lost 1.0% to close at 1,610.41 pts. On the broader market, selling pressure was overwhelming as decliners outnumbered gainers by a ratio of 5-to-1. Market traded volumes stood at 2.67bn, worth RM1.86bn. We observed that the HSI put warrants were topping the gainers list.

Wall Street ended sharply lower at the start of this week as China retaliates against President Trump’s latest new tariffs threat (imposing 10% on USD300bn worth of Chinese products, effective 1st Sept). Meanwhile, China allowed its currency to move beyond the key level of 7, for the first time since 2008 and halted new purchases of US agricultural products (according to state run media). The Dow and S&P500 plummeted 2.90% and 2.98%, respectively, while Nasdaq dived 3.47%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI continues to trend within the retracement phase (closed in the negative territory for 16 sessions out of 24 sessions). The MACD Indicator expanded negatively below zero, but both the RSI and Stochastic oscillators threading within the oversold position. Despite the oversold signals flashing on the momentum oscillators, we believe the downtrend on the KLCI may persist and the technical rebound will be short lived. The support zone is around 1,580- 1,600, while the immediate resistance is located around 1,640-1,658.

On the local front, we anticipate further selling activities, especially the technology sector following a slump in the US markets, which led by tech giants such as Apple. Also, with the China yuan located above 7 (depreciation bias), emerging markets currencies such as ringgit may turn extend its weakening bias mode over the near term and the FBM KLCI may revisit the region of 1,580-1,600.

TECHNICAL OUTLOOK: DOW JONES

With both the superpowers retaliating further on the trade war, we believe the consequences will be negative on market sentiment. In addition, the reciprocal actions by China of halting purchases on US agricultural products as well as the renminbi movement are likely to deter a trade deal between the US and China. Hence, we may expect further downside risk on Wall Street and the Dow may stabilise near the next support of 25,500 (SMA200).

The Dow has closed lower for the fourth trading day amid escalating trade tensions and lost near to 1,500 points since last Wednesday. The MACD indicator expanded negatively below zero, but both the RSI and Stochastic oscillators are threading within the oversold region. Resistance will be set along 26,000, while next support is located around 25,500.

CLOSED POSITION

In view of the escalating trade tensions and weakening technicals on most of the 3Q stock picks, we closed our positions on GKENT (-6.7%), ADVCON (-9.6%), OKA (-3.7%), DAYANG (-3.5%), GCB (0.0%) and JOHOTIN (-1.4%).

Source: Hong Leong Investment Bank Research - 6 Aug 2019