MARKET REVIEW

Despite the US and China labelled deputy-level talks that ended in Washington last week as "productive" and "constructive”, Asian markets ended lower in tandem with a 160-pt decline on Dow last Friday and a 0.98% slide on SHCOMP. Overall, investors are generally negative that the U.S.-China trade war has hardened into a political and ideological battle that runs far deeper than tariffs and could take years to resolve.

Tracking sluggish regional markets, the KLCI slid 4.6 pts to 1592.9, led by selling pressures in SIMEPLT, MAXIS, PETCHEM, MAHB and PMETAL. Trading volume decreased to 2.03bn shares worth RM1.39bn as compared to Friday’s 3.1bn shares worth RM3.29bn. Market breadth was negative with 333 gainers as compared to 502 losers.

Overnight, the Dow inched up 15 pts to 26950 after hovering within 26831-27011 territory amid lingering trade tensions between US and China. Sentiment was also dampened by sluggish IHS Markit economic data out of Europe and slowing US manufacturing and services data.

TECHNICAL OUTLOOK: KLCI

In the near term, KLCI is expected to trend sideways as the MACD indicator is hovering below zero while both RSI and Stochastic oscillators are still hooking down. Immediate supports are situated around 1581 (15 Aug low) and 1572 (14 May low), while the resistance is pegged at 1600 psychological barrier and 1610 (upper BB).

In the near term, trading sentiment on Bursa Malaysia would remain lacklustre given the negative undertone on Wall Street and volatility in global oil prices due to increased geopolitical risks in the Middle East and upcoming US-China trade talks in October. Investors would likely to remain cautious ahead of the FTSE Russell’s World Government Bond Index (WGBI) review of Malaysia bonds on 26 Sep and the tabling on Budget 2020 on 11 Oct. The KLCI trading range likely to be seen around 1580-1610 zones.

TECHNICAL OUTLOOK: DOW JONES

After hitting 1M high of 27306 (12 Sep), the Dow has reversed and drifted lower to a low of 26831 yesterday before ending at 26951. Given the potential MACD dead cross formation and the flattish RSI/Stochastic indicators, the index is expected to engage in short term consolidation, with key supports situated near 26700 (20D SMA) and 26450 (30D SMA). Stiff resistances are pegged at 27300-27500 zones.

We maintain our view that the Dow will continue to trend in range bound mode (26500-27400 zones) as investors digest the divided views on the next course of actions by the Fed in the Oct 30-31 and Dec 10-11 FOMC meetings. In addition, traders will be shifting their attention towards the crucial US-China trade negotiation in early October as well as the upcoming US 3Q19 reporting season in mid Oct (consensus is predicting the S&P 500 earnings to decline 4.8% YoY from a flat performance in Q1 and Q2).

TECHNICAL TRACKER: CLOSED POSITIONS

Yesterday, we squared off KNM (9.2% return) after hitting R1 upside target.

Source: Hong Leong Investment Bank Research - 24 Sept 2019