MARKET REVIEW

Key regional benchmark indices ended lower as Covid-19 confirmed cases and death toll outside of China were on the rise; South Korea raised its coronavirus alert to the “highest level” following a rapid spike in cases over the weekend and impacted aviation stocks on Monday. The Kospi index plunged 3.87%, while Shanghai Composite Index and Nikkei 225 fell 0.28% and 0.35%, respectively.

Besides the Covid-19 cases were rising outside of China, the FBM KLCI lost 2.69%, falling below the 1,500 psychological level after Prime Minister Tun Mahathir submitted his resignation to the king and it has clouded the political scene at this juncture. Market breadth was extremely negative with only 138 gainers as compared to 1015 decliners. Market trade volume stood at 4.03bn, worth RM3.91bn. Despite the negative sentiment, gloves stocks such as Top Glove and Hartalega traded higher for the session amid weaker ringgit.

Wall Street declined significantly amid rising confirmed cases of Covid-19 outside China, contributing to further worries of a potential negative impact on global economic from the current coronavirus outbreak. Stocks within the aviation, casino operators and selected chipmakers were traded lower; the Dow and S&P500 lost 3.56% and 3.35%, respectively, while Nasdaq plunged 3.71%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI gapped down sharply following the political developments over the weekend and the MACD Indicator remains negative for now. Meanwhile, both the RSI and Stochastic oscillators are trending below 50. Hence, the upside will be limited around 1,515 -1,530, while support will be set along 1,480.

Tracking the global indices, especially the sharp drop on Wall Street, coupled with the uncertain political developments in Malaysia, we expect selling interest would still be dominating in the local front. However, selected heavyweights could be due for a swift technical rebound (overall mid-to-long term trend is still down) on an intra-day basis after a sharp fall yesterday. Should the current political scene remains cloudy, the FBM KLCI will be capped around 1,515-1,530, while support is located around 1,480.

TECHNICAL OUTLOOK: DOW JONES

Following the bearish divergence signal and “sell” formation on the MACD, the Dow declined sharply below the earlier support of 28,500. The MACD Indicator has dropped near the zero level. Meanwhile, both the RSI and Stochastic oscillators are turning negative. The resistance is set around 28,500, while support is anchored around 27,000.

In the US, we expect the profit taking activities to persist under the ongoing Covid-19 outbreak, where the unresolved situation could impact the global growth outlook. Hence, we believe aviation, casino related stocks as well as tech giants that have exposure in China may stay volatile with downward bias risk in the near term. The Dow’s trading range will be located around 27,000-28,500.

CLOSED POSITIONS

Following the market meltdown, we had squared off our positions on technical trackers i.e. MELEWAR (12.9% loss), MCEMENT (5.9% loss) and 1Q20 quarterly pick, NADIBHD (5.4% loss).

Source: Hong Leong Investment Bank Research - 25 Feb 2020