MARKET REVIEW

Asian markets ended on a mixed note as sentiment was dampened by a 2% decline in China’s Aug industrial profits after rising in July (+2.6%) and June (3.1%). Moreover, investors were watching the developments on the US and China trade front after news reports that the trade negotiations are set to resume on 10-11 Oct in Washington. The Shanghai index inched up 0.1% ahead of the week-long National Day holidays (1-7 Oct) whilst both the Nikkei 225 (- 0.77%) and Hang Seng Index (-0.33%) slipped into the negative territories.

Meanwhile, stocks on the local front were mostly negative as Malaysia were kept on review for a potential downgrade by index provider FTSE Russell (pending next review in march 2020) and rising political turmoil in the US amid whistle-blower complaint against President Trump. KLCI lost 8.9 pts or 0.56% to 1584.1 while market breadth was negative with 483 decliners as compared to 287 advancers. Trading volume increased to 1.88bn shares worth RM1.33bn as compared to Thursday’s 1.81bn shares worth RM1.61bn.

The Dow rose as much as 122 pts amid news that the long-awaited US-China trade talks are set to resume on 10-11 Oct in Washington. However, the entire gains were wiped off and the index finally lost 71 pts at 26820 following news that the White House is considering delisting Chinese companies from U.S. stock exchanges and limiting Americans’ exposure to the Chinese market through government pension funds.

TECHNICAL OUTLOOK: KLCI

After falling below multiple key SMAs supports, we reiterate that KLCI is expected to trend sideways with downside bias as the MACD indicator is hovering below zero while both RSI and Stochastic oscillators are still trapped in downtrend mode. Immediate supports are situated around 1581 (15 Aug low) and 1572 (14 May low), while the resistance is pegged at 1595 (10D SMA) and 1600 psychological barrier.

Despite potential end-Sep window dressing activities today after tumbling 88 pts or 5.3% since end June, KLCI is still susceptible for more choppiness ahead amid uncertain outlook as Malaysian government bonds are still on the Watch List for potential downgrade in the WGBI (pending the next review in March 2020). Moreover, broader market remains cautious as investors await the crucial US-China trade talks on 10-11 Oct and the tabling of Budget 2020 on 11 Oct. KLCI is likely to engage in sideways trading around 1571-1595 zones.

TECHNICAL OUTLOOK: DOW JONES

After hitting 1M high of 27306 (12 Sep), the Dow uptrend reversed and drifted lower to a low of 26716 yesterday before closing at 26820. After falling below 20D SMA or 26875 and compounded by the MACD dead cross formation and the weakening RSI/ Stochastic indicators, the index is expected to engage in an extended consolidation, with key supports situated near 26578 (50D SMA) and 26382 (100D SMA). Stiff resistances are pegged at 27000-27400 zones.

We maintain our view that the Dow will continue to trend in range bound mode (26400-27400 zones) in the near term as investors digest the divided views on the next course of actions by the Fed in the 30-31 Oct and 10-11 Dec FOMC meetings, as well as closely monitoring the upcoming trade talks on 10-11 Oct. In addition, traders will be shifting their attention towards 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

We had squared off our positions on OKA (6.7% gain), Advancecon (5.2% gain), JAKS (3.2% loss) and TOPGLOV (1.9% loss) last Friday.

Source: Hong Leong Investment Bank Research - 30 Sept 2019