MARKET REVIEW

Tracking the 880-pt slump on the Dow and record low of US 10Y bond yield amid fears of the economic damage from the global spread of the Covid-19, Asian stock markets traded in the sea of red on Wednesday as the spread of the coronavirus beyond China was rising. Major losers were SET (5.2%), ASX200 (2.3%), JCI (1.7%) and KOSPI (1.3%).

In wake of uncertain local political developments, coupled with the ongoing Covid-19 outbreak have spurred potential pandemic fears; KLCI lost 5.7 pts at 1495.2 after traded within a range of 23.19 points between an intra-day high of 1508.4 and a low of 1485.2. Trading volume increased to 3.87bn shares worth RM3.07bn as compared to Tuesday’s 3.13bn shares worth RM2.76bn. Market breadth was negative with 350 gainers as compared to 538 losers.

After nose-diving 2267 pts for 4 consecutive days amid virus-driven selloff caused by fears of the coronavirus outbreak leading to a slowdown in the US economy, the Dow rallied as much as 461 pts before resuming its losses again to end 124 pts lower at 26967. Cautious sentiment prevails as the US Centers for Disease Control and Prevention urged Americans to remain alert as fear of the Covid-19 disease infecting the US is intensifying and may affect global travel as well as taking a bite out of confidence about earnings and economic growth.

TECHNICAL OUTLOOK: KLCI

Following the double top formation and a violation of 1548 neckline support, KLCI had tumbled 7.5% or 122 pts from 1617 (30 Dec) to 1495 yesterday. MACD remains bearish whilst RSI and slow stochastic readings are indicating oversold levels with potential technical rebound in the short term. We expect consolidation to prevail and only a successful rebound towards refilling the 1510-1527 gap (24 Feb) would spur greater upside to revisit the support-turned-resistance 1548 levels. Conversely, a breakdown below 1481 (25 Feb low and the double top reversal base support) could reignite further selling spree towards 1440 territory.

In wake of the bearish Wall Street performance and the uncertain political developments in Malaysia, we believe selling pressure may continue, pending the formation of new cabinet line up and subsequently the stimulus package announcement. As the political situation remains extremely fluid, and we may not rule out a snap election; this may elevate risks and uncertainty in the near term. The priority for equity investors should be preservation of capital, with core holdings in defensive and resilient high-yield stocks. Trading range of KLCI will be set around 1480-1525.

TECHNICAL OUTLOOK: DOW JONES

The Dow extended its decline for the 5th consecutive day to 26957, breaching its 200D SMA support near 27235 and plunging 2612 pts or 8.8% from all -time high of 29569 (12 Feb). The MACD indicator continues to extend its bearish decline but both the RSI and Stochastic oscillators are extremely oversold, signalling potential technical rebound in the near term. A successful reclaim above 200D SMA will spur further technical rebound towards 27500/28000 zones. Further downside supports are 26300/26000 levels.

We observed that investors are fleeing equities and rushing for bonds at the moment as the 10Y/30Y yields are hovering near all-time lows, on the back of the Covid-19 outbreak and very likely to be affecting global trade and travel as well as potentially taking a bite out of confidence on corporate earnings and economic growth moving forward. We see the Dow to range bound within 26500-28000 levels in the short term.

TECHNICAL TRACKER: CLOSED POSITIONS

Yesterday, we had squared off our positions on technical trackers i.e. BAHVEST (7% loss) and GTRONIC (4.2% loss).

Source: Hong Leong Investment Bank Research - 27 Feb 2020