MARKET REVIEW

Asia’s stock markets ended on mixed note despite Chinese factory activities in September were stronger-than-expected; the official PMI and private Caixin/ Markit PMI stood at 49.8 (vs. 49.5 in Aug) and 51.4 (vs. 50.4 in Aug), respectively. Meanwhile, investors continued to monitor the developments on the US and China trade front. Nikkei 225 and Shanghai Composite Index declined 0.56% and 0.92%, but Hang Seng Index rose 0.53%.

On the local front, trading sentiment remained tepid and the KLCI closed at 1,583.91 pts (- 0.01%). Market breadth was negative with decliners led advancers by a ratio of 5-to-3, accompanied by 1.86bn shares traded for the session, valued at RM1.50bn. Still, selected technology (SALUTE, PIE) and construction (CMSB, GAMUDA) stocks were traded actively higher.

Wall Street ended higher on the last day of 3Q19 after trade advisor Peter Navarro claimed that the recent reports that the US is considering restrictions on Chinese companies are inaccurate. Shares were traded higher led by technology giants such as Apple Inc.; the Dow and S&P500 rose 0.36% and 0.50%, respectively, while Nasdaq added 0.75%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI extended its negative trading tone, and trending within the downward channel. Despite the key index forming a hammer candle along 1,580 level. The MACD indicator is still in the negative territory, trending lower. Meanwhile, the RSI is below 50, while Stochastic is in the oversold region; suggesting that the KLCI could rebound with a limited upside. Resistance is envisaged around 1,600. Support is anchored around 1,572.

We believe the trading tone will remain subdued over the near term awaiting fresh leads from the upcoming Budget 2020 (11th Oct) as well as the developments on the US-China trade front. In the meantime, we opine that selected technology and construction stocks will extend its positive trading sentiment following a decent surge in trading volumes and prices recently.

TECHNICAL OUTLOOK: DOW JONES

The Dow continues to trade within a narrow range between 26,700-27,000 levels over the past 6 trading days. The MACD Line has been declining recently, while both the RSI and Stochastic oscillators are threading below 50. Hence, we believe that Dow could extend its consolidation phase in the near term. Resistance is located around 27,200, while support is set around 26,800, followed 26,400.

Although sentiment has turned marginally positive, we believe uncertain issues such as trade discussion between US and China that will be held in Washington on 11th Oct and developments on Brexit may limit the upside potential on global stock markets and Wall Street. Resistance will be set along 27,200.

Source: Hong Leong Investment Bank Research - 1 Oct 2019