MARKET REVIEW

Despite weaker-than-expected September China’s trade data (Chinese export and import dropped 3.2% and 8.5%, respectively YoY), Asia’s stock markets managed to trend higher following the high-level trade discussion between the US and China last Friday, which reached a partial trade deal and US Treasury Secretary Steven Mnuchin commented tariff hike on USD250bn worth of Chinese imports will not take effect. The Shanghai Composite and Hang Seng Index rose 1.15% and 0.81%, respectively, while Japan is closed for a public holiday.

Similarly, key index on the local front traded higher following the mildly positive Budget 2020 as well as the phase-1 deal after trade talks on Friday; the FBM KLCI added 0.69% to 1,567.59 pts. Market breadth was positive with 487 gainers vs. 367 losers. Market traded volume stood at 2.99bn shares traded for the day, worth RM1.84bn. Technology sector, especially the automation-related stocks were given a booster and trended higher after announcing some tax incentives and policies in the Budget 2020.

Wall Street took a pause after the rally last Friday on the back of renewed concerns over the US and China mini-deal as China wants to have additional trade talks before signing on the “phase-1” deal. The Dow and S&P500 slipped 0.11% and 0.14%, respectively, while Nasdaq down 0.10%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI rebounded significantly following the Budget 2020 and the MACD indicator is recovering from the negative region, while both the RSI and Stochastic oscillators are trending higher, recovering above the oversold region. Resistance is located around 1,580, while support is anchored around 1,550.

With slight pullback on Wall Street overnight, we expect stocks on the local front would take a mild breather as well, digesting gains on the relief rally contributed by the mildly expansionary Budget 2020. The FBM KLCI’s trading range will be located around 1,550-1,580. Nevertheless, traders may lookout for stocks within technology sector on the back of decent tax incentives given in the Budget 2020.

TECHNICAL OUTLOOK: DOW JONES

The Dow has turned sideways after the strong rebound from the SMA200 two weeks ago. The MACD Histogram has been narrowing over the past few sessions, while both the RSI and Stochastic oscillators are hovering above 50. Nevertheless, we believe the stiff resistance is envisaged around the 27,000 psychological level. Support is pegged along 26,000 (SMA200) level.

In the US, we believe market sentiment will stay soft amid the return of trade-deal scepticism as China put a pause on the deal and wants another round of discussions before signing the phase-one deal with the US. Hence, we expect more downside risk on the Dow over the near term. Meanwhile, traders may focus on the upcoming reporting season in the US. For the Dow, the trading range is set around 26,400-27,000.

TECHNICAL TRACKER: CLOSED POSITION

We had squared off our position on ISTONE (17.5% gains) yesterday after hitting our R2 upside target.

Source: Hong Leong Investment Bank Research - 15 Oct 2019