MARKET REVIEW

Asia’s key benchmark indices traded mixed as investors were staying cautious over the developments on the US-China trade front, as both the US and China imposed further tariffs on goods from both parties over the weekend. Nikkei 225 and Shanghai Composite Index rose 0.02% and 0.21%, while Hang Seng Index declined 0.39% caused by the protracted protest in Hong Kong.

Meanwhile, stocks on the local front reversed last Friday’s gains and the KLCI took a beating below the 1,600 psychological level at 1,591.52 pts (-1.28%) led by banking heavyweights amid a potential interest rate down cycle environment and asset quality concern. Market breadth turned negative with losers outpaced gainers by a ratio of 5-to-2. Market traded volume stood at 2.26bn (worth RM1.59bn). Nevertheless, selected O&G and construction stocks such as UZMA and PTARAS traded actively higher for the session.

Wall Street started the September trading month on a negative tone as both the US and China started to implement new tariffs on each other’s products. Also, the ISM US Manufacturing PMI fell to 49.1 in Aug (lowest reading in more than 3 years and below 50 – suggesting contraction mode). The Dow and Nasdaq declined 1.08% and 1.11%, respectively, while S&P500 fell 0.69%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI reversed and formed a bearish engulfing bar on Tuesday, while the MACD Line is hovering below zero, with the MACD Histogram turning weaker yesterday. Meanwhile, both the RSI and Stochastic oscillators are hovering below 50. Hence, with the weaker technical readings, the KLCI’s upside is likely to be limited over the near term with resistance pegged around 1,620-1,640. Support will be located around 1,572-1,580.

On the local front, we believe selling pressure may continue following the negative performances on Wall Street overnight, coupled with the slower-than-expected manufacturing data from the US. However, there could be some trading activities amongst construction sector on the back of revival of KVDT2 project and we may anticipate trading interest to build up on building materials and rail electrification stocks for now.

TECHNICAL OUTLOOK: DOW JONES

The Dow retested the 26,400 before declining yesterday and the MACD Histogram has turned lower in tandem with the MACD Line hovering below zero. Both the RSI and Stochastic oscillators are hovering below 50. Hence, we expect the Dow to trade sideways over the near term. Resistance is envisaged around 26,400-26,800. Support will be located around 26,000, followed by 25,600 (SMA200).

Given the new tariffs have set in from both the US and China, coupled with the slowing manufacturing data in the US, Wall Street may trend lower over the near term. However, should there be any positive trade developments in the upcoming trade discussion between the US and China in Washington this month, it could lift the trading sentiment. The Dow’s resistance is located around 26,400.

TECHNICAL TRACKER: CLOSED POSITION

Yesterday, we had squared off our positions in PANTECH (+1% return) and IRIS (0% return) due to expiry.

Source: Hong Leong Investment Bank Research - 4 Sept 2019