MARKET REVIEW

Tracking sharply lower Wall Street overnight, Asian markets ended negatively as the COVID- 19 outbreak intensified, despite measures by some major economies to slash interest rates and pledge billions of dollars to fight the epidemic have done little to allay fears about the spread of the virus and the economic fallout with supply chains crippled around the world. Top losers were ASX200 (2.8%), NIKKEI 225 (2.7%), SENSEX (2.5%) and HSI (2.3%). Similarly, KLCI slipped 7.9 pts to 1483.1 amid domestic political turmoil and pending the new cabinet line-up as well as the COVID-19 fears due to a spike in new cases in Malaysia has overshadowed the RM20bn economic stimulus package and YTD 0.5% OPR reductions (- 0.25% each on 22 Jan & 3 Mar), which meant to cushion the impact from COVID-19. Trading volume declined to 2.65bn shares worth RM2.29bn against 2.78bn shares valued at RM2.07bn on Thursday. Market breadth was bearish with 251 gainers as compared to 649 losers.

Wall Street slipped in a volatile session amid increasing concerns over COVID-19 outbreak worldwide may disrupt economic activity and traders were rushing into safe-haven assets such pushing US Treasury 10-year bond yield to a fresh record low below 0.8% and gold prices surged 6.8% WoW to 7Y high at USD1672. Meanwhile, Brent oil prices tumbled by the most in five years (-8.9% to US$45.5) after OPEC+ failed to agree on a massive production cut. The Dow tumbled 256 pts or 1% to 25865 (-12.5% from all-time high 29569) and the S&P 500 plunged 52 pts or 1.7% at 2972 (-12.4% from all-time high 3393) while the Nasdaq squandered 163 pts or 1.9% at 8576 (-12.8% from all-time high 9838).

TECHNICAL OUTLOOK: KLCI

After correcting 10% or 161 pts from 1617 (30 Dec high) to a low of 1456 (2 Mar low), KLCI staged a 27-pt technical rebound to end at 1483 (+0.5-pt WoW) last Friday. The MACD Histogram continues to recover, but the MACD Line is still hovering below zero. Meanwhile, both the RSI and Stochastic oscillators are still consolidating below 50. On the back of external and internal uncertainties, KLCI is likely to engage in consolidation mode and only a successful rebound towards refilling the 1510-1527 gap (24 Feb) could spur greater upside to revisit the support-turned-resistance 1548 levels. Conversely, a breakdown below 1479 could reignite further selling spree towards 1456/1440 territory.

Given the bearish Dow’s outlook, we expect KLCI to lock in near term consolidation (range bound within 1456-1517) amid domestic political crisis and pending the new PM’s cabinet line up coupled with the ongoing COVID-19 situation. Meanwhile, worries over the implementation of Budget 2020 as well as the RM20bn economic stimulus package resurface as oil prices last Friday crashed to USD45.5 (-40% from 52w high of USD75.6 and -26% lower than average USD62 petroleum-related revenue crude oil price assumption by MOF). Hence, in the near term, the priority for equity investors should be the preservation of capital, with core holdings in defensive and resilient high-yield stocks.

TECHNICAL OUTLOOK: DOW JONES

After sinking as much as 895 pts intraday, the Dow reduced the losses to 256 pts at 25865 (+457 pts WoW) last Friday, extended its wild swings after hitting a bottom at 24681 (28 Feb). The MACD indicator continues to trend bearishly while both the RSI/Stochastic oscillators are consolidating below 50%, signalling an extended consolidation unless the Dow can successfully reclaim above 200D SMA resistance near 27251. Further downside supports are 25000/24600/24000 levels.

We are likely to witness an extended wild swings downward consolidation on the Dow (24600- 27200 levels) in the near term amid lingering concerns about the economic impact as the COVID-19 outbreak has the potential to become a pandemic, significantly affecting global trades and travels as well as US corporate earnings and economic growth in the mid to long term. Nevertheless, the pre-emptive 0.5% rate cut by the Fed and the USD8bn emergency fund being passed by the lawmakers to combat COVID-19 outbreak in the US are likely to cushion further sharp correction, barring further devastating coronavirus outbreak in US.

Source: Hong Leong Investment Bank Research - 9 Mar 2020