MARKET REVIEW

Asia’s stock markets ended mixed last Friday as investors trading pattern remain cautious watching the developments of the ongoing Covid-19 outbreak after WHO’s Director General Tedros Adhanom Ghebreyesus commented that the low number of cases outside of China “may not stay the same for long”; we noticed a spike in number of confirmed cases in Beijing and South Korea over the weekend as well. Nikkei 225 and Hang Seng Index fell 0.39% and 1.09%, respectively, but Shanghai Composite Index gained 0.31% as China’s Ministry of Commerce told the press conference that the resumption of work has been rapidly increasing in major foreign trade provinces such as Guangdong and Jiangsu.

Meanwhile, the FBM KLCI ended lower for the session at 1,531.20 pts (-0.25%). Market breadth was negative with 439 decliners vs. 391 advancers, accompanied by 2.73bn shares (worth RM2.14bn) traded on last Friday. Under the cautious environment, market participants were seen buying into consumer stocks such as Dutch Lady, Carlsberg, Heineken, Ajinomoto as well as DKSH.

US stocks traded significantly lower amid increasing concerns over Covid -19 as cases outside China spiked and worries that this may dampen the business activities; eventually slowing down the global growth. Also, traders were fleeing equities for safe haven assets such as Treasury bonds and gold and 30-year Treasury bond yield hit a record low, while gold hit a fresh 7-year high. The Dow and S&P500 0.78% and 1.05%, respectively, while Nasdaq declined 1.79%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI continues to trend lower and the MACD indicator is hovering flattish below zero, while the MACD histogram has weakened on Friday. The RSI and Stochastic have hooked downwards last Friday. Hence, with the weaker technical readings, we expect KLCI’s upside could be limited in the near term. Support is located around 1,515, but should this level break next support is set around 1,424.

Tracking the negative performance on overnight Wall Street, coupled with the rising political noise, we believe the upside may be capped Bursa exchange. We think the FBM KLCI may decline amid the uncertain political scene which unfolded over the weekend, hence traders could look into trading range around 1,424 should the support at 1,500 is broken. At the same time, traders may want to look at gold-related stocks (on the back of gold rally recently) for a short term trading opportunity.

TECHNICAL OUTLOOK: DOW JONES

The Dow has declined for the past 2 trading days and the MACD indicator has issued a “sell” formation (MACD Line crossed below Signal Line) following the bearish divergence signal over the past few weeks. Meanwhile, both the RSI and Stochastic oscillators have hooked downwards. The Dow’s resistance is located around 30,000, while support is anchored around 28,500.

In the US, with the re-emergence of cautious tone from the market participants, we believe the profit taking activities could persist over the near term. Moreover, should the number of cases outside of China continue to increase, sentiment will remain negative and may contribute to further selling pressure on Wall Street. The Dow’s support is anchored around 28,500 at this juncture.

Source: Hong Leong Investment Bank Research - 24 Feb 2020