MARKET REVIEW

Despite overnight losses on Wall St, Asian’s key markets ended higher amid better-than expected China services sector data and receding political risks from UK (after Parliament took a crucial first step to block a no-deal Brexit) to HK (following the formal withdrawal of Hong Kong’s extradition bill). Top gainers were the Hang Seng index (+3.9%), followed by Thailand (+1.3%), Singapore (+1.3%) and Korea (+1.2%).

After plunging 20.6 pts on 3 Sep amid persistent worries over the US-China trade war, no-deal Brexit possibilities and disappointing Aug reporting season, KLCI staged an 8.4-pt technical rebound to 1599.8 in line with regional markets gains and buoyed by a positive July trade data. Trading volume increased to 2.49bn shares worth RM1.73bn as compared to Tuesday’s 2.26bn shares worth RM1.59bn. Market breadth was positive with 479 gainers as compared to 308 losers.

The Dow surged 237 pts to 26335, recouping 83% of the 285-pt plunge on 3 Sep amid easing tensions in Hong Kong, the potential for new stimulus measures out of China and growing hopes that the UK could avoid a disorderly exit from the EU. Sentiment was also boosted by a strong China Caixin Services PMI and positive remark by New York Fed chief’s John Williams remark that the US economy appeared to be in a good place and he is ready to “act as appropriate” to help avoid a downturn.

TECHNICAL OUTLOOK: KLCI

After sliding 6.7% from 3M high of 1694.6 (2 Jul) to a low of 1581.3 (15 Aug), KLCI is gradually firming up to end at 1599.8 yesterday, a tad below the 1600 psychological level. Given the bullish Harami pattern with RSI and stochastic indicators ticking up coupled with the formation of MACD golden cross, the index is expected to grind higher to retest 1615 (SMA30) levels, followed by stronger hurdle at 1635 (SMA100). Conversely, failure to defend the 1581 levels could reignite further sell down to 52-week low at 1572 (14 May).

Although yesterday’s bounce would help offset concerns about the decelerating global economy, which deepened after a slew of weak PMI readings and the resumption of the latest round of US and China tariffs last week. Still, the risk-on mood may be premature as sentiment remains buffeted by external and domestic issues coupled with the final decision by FTSE Russell on local government bonds ratings on the World Government Bond Index soon. Nevertheless, we still anticipate positive news flows ahead of the Budget 2020 (11 Oct), further rates cut by Fed/ BNM to cushion slowing economy, trade diversion and M&A activities to provide a lift to our lull market.

TECHNICAL OUTLOOK: DOW JONES

In spite of recent gyrations, the Dow is still managed to build a base above the critical 25633 (SMA200) levels, indicating its underlying resilience. Given the bottoming up indicators and a firm close above multiple key SMAs, the Dow is envisaged to advance further towards 26600- 26900 targets, while supports will be pegged around 26000 and 25600.

Following the easing political tensions in UK and Hong Kong coupled with expectations of further 25 bps cut in the upcoming FOMC meeting on 17-18 Sep (91%, according to FedWatch pool), the Dow is holding up well above SMA200 near 25633 zones. Moreover, 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 26600-26900.

TECHNICAL TRACKER: CLOSED POSITION

Yesterday, we had squared off our position in TM (-3% return) amid weakening technicals.

Source: Hong Leong Investment Bank Research - 5 Sept 2019