MARKET REVIEW

Asian markets fall on rising death tolls from the coronavirus in China, with heavy losses in Vietnam (-3.2%) and HSI (-2.6%), as investors priced in the economic impact of the virus outbreak. Adding to woes, the WHO expressed concern over the person -to-person spread of the virus in Germany, Japan, Vietnam, and the US and China.

In line with sluggish regional markets, KLCi dropped 4.9 pts to 1545.6, registering its 8th consecutive declines. Trading volume rose 2.81bn shares worth RM2.32bn as compared to Wednesday’s 2.69bn shares worth RM2.55bn. Market breadth was negative with 253 gainers as compared to 646 losers.

The Dow plunged as much as 244 pts to a low at 28490 following news of a first U.S. incident of person-to-person spread of the Wuhan virus and the WHO’s declaration of coronavirus a global health emergency, with person-to-person transmissions occurring within the borders of Germany, Japan, Vietnam, and the US and China. However, the Dow managed to rebound 369 pts from the low to close 125 pts higher at 28859, as investors looked past fears about the economic impact of the coronavirus epidemic and focus on a spate of positive earnings reports (with 70% beating EPS estimates and 69% beating revenue estimates for the S&P 500 comapnies that reported so far).

TECHNICAL OUTLOOK: KLCI

Following the double top formation after hitting 1617 (30 Dec), KLCI began its 77-pt correction to a low of 1540 (30 Jan) before paring the losses to 72 pts at 1545 yesterday. Given the hammer candlestick pattern and grossly oversold technical readings, further severe downside risks are diminishing, with strong supports at 1534 (123.6% FR)/1524 (138.2% FR)/1516 (150% FR) levels. For technical rebound, look out at the 1558/1568 gap resistance (28 Jan). Only a strong refill above this gap will lift the index higher towards 1576 (61.8% FR)/1584 (50% FR)/1590 (38.2% FR) levels.

In the absence of positive local leads and ahead of the Feb reporting season, coupled with cautious sentment amid the 2019-nCoV outbreak and its impact on global growth, trading is expected to stay choppy following the recent sell-off. Overnight strong Dow rebound may boost KLCI today but we reiterate that only a decisive reclaim of the 1558-1568 gap (28 Jan) will improve sentiment and lift index higher towards 1576-1590 zones.

TECHNICAL OUTLOOK: DOW JONES

From an all-time high of 29374 on 17 Jan, the Dow had slumped 933 pts to an intraday low at 28441 (27 Jan) before ending at 28859 overnight, a tad above the uptrend line support from a low of 25743 (3 Oct). As indicators are showing signs of resilience following the Doji star pattern on 27 Jan and building base above 50D SMA or 28431, the Dow is likely to trend higher despite facing interim volatility. A decisive reclaim above 20D SMA near 28911 will resume its uptrend to retest 29000/29374 zones. Key supports are situated at 28000-28400 zones.

In the short term, the Dow is expected to remain in choppy as investors remained wary of the virus outbreak and its impact on global growth, after the WHO said on Thursday it was declaring the coronavirus outbreak as global emergency that has killed 171 people in China with 8243 infected cases and already spread to at least 22 countries. Nevertheless, downside risks are likely to be well-cushioned by the Fed’s positive US economic outlook and accommodative monetary policy coupled with the ongoing positive 4Q19 results. Crucial supports are situated at 28000-28400 whilst resistances are at 29000-29400 levels.

Source: Hong Leong Investment Bank Research - 31 Jan 2020