MARKET REVIEW

Asian markets ended higher, led by Chinese markets as the SHCOMP rose 0.9% to 2927 (its 7th straight session gains) after officials reported the lowest daily increase in coronavirus infection cases in nearly two weeks, calming investor nerves over the epidemic’s economic impact.

Bucking regional markets, KLCI slid 10 pts to 1542 following a steeper-than-expected decline in Malaysia’s 4Q19 GDP to 3.6% (the slowest in 10 years) from 4.7% in 4Q18 and expectations of more pessimistic 2020 outlook following the COVID-19 outbreak. Banking stocks led the decline as BNM hinted on ‘ample room’ for OPR adjustments amid ongoing economic challenges.

Wall Street ended higher overnight, with all three major benchmarks registering all-time high closing, boosted by signs of a decline in the number of new cases of COVID-19. The Dow and Nasdaq soared 275 pts and 87 pts to 29551 and 9726, respectively, while the S&P500 rose 22 pts to 3379. Meanwhile, Jerome Powell commented that the Fed has recession-fighting tools i.e. buying government bonds in an effort to push down long -term interest rates (i.e. QE policy), but Powell reiterated that the American economy is in a good place. Nevertheless, the central bank is closely monitoring the potential global economic fallout from the virus.

TECHNICAL OUTLOOK: KLCI

Following the double top patterns, KLCI dived 6.2% from 1617 (30 Dec) to 1517 (3 Feb), violating the neckline support of 1548. Despite staging a 2.6% or 40 pts technical rebound to 1557 (10 Feb), the momentum tapered off as the index fell 8.5 pts to 1542.9 yesterday, below the key 1548 levels again. In wake of the mixed indicators, KLCI is expected to lock in sideways pattern with key supports at 1532 (weekly lower BB) and 1517. Conversely, only a strong breakout above the support-turned-resistance 1548 will spur KLCI to refill 1558/1568 gap resistance (28 Jan) and advance further towards 1580 (100D SMA) and 1600 levels.

The overnight bullish Wall St closing and continued slowdown in the number of new cases of COVID-19 in China may boost KLCI today but we reiterate that only a decisive close above the 1548 neckline resistance and 1558-1568 gap (28 Jan) would boost the chances for a more sustainable recovery to 1600 zones. Nevertheless, we see good short term supports near 1500-1520 in anticipation of more stimulus measures and possible OPR cuts in March (BNM hinted yesterday on ample room for another round of OPR adjustments). High divvy yielders should remain in flavour in light of this further cut: TALIWRK, MAYBANK, MATRIX, HUPSENG, ASTRO, BJTOTO, MBMR, BAUTO, MAHSING, PECCA and SUNREIT.

TECHNICAL OUTLOOK: DOW JONES

The Dow rallied 275 pts at 29551, surpassing the all-me high of 29374 (17 Jan). In wake of the bullish indicators, the index is likely to sustain its positive momentum to advance further towards our envisaged 30000 upper channel resistance while the support is pegged around 28600-29000 territory.

In the near term, the real impact of the coronavirus outbreak is still uncertain and the viral outbreak could pose a threat to global growth as the epidemic has spooked investors amid quarantines, supply-chain disruptions and factory shutdowns. Nevertheless, sentiment remain resilient and boosted by WHO’s remarks that new coronavirus cases in China have stabilized and consensus view that the COVID-19 will plateau by 1Q2020 and the global economy will quickly rebound. On the flip side, downside risks are well-cushioned by the Fed’s positive US economic outlook and accommodative monetary policy coupled with the ongoing positive 4Q19 results. The Dow’s near term trading range will be located at 28600-30000.

Source: Hong Leong Investment Bank Research - 13 Feb 2020