MARKET REVIEW

Global: Asian markets ended higher on better-than-expected trade data from China as signs of the coronavirus outbreak peaking in certain hotspots, shrugging off a bearish global IMF’s 2020 economic outlook. The organization forecasts 2020 global economy to sink by 3% (earlier forecast +3.3%), the worst downturn since the Great Depression following a stunning coronavirus-driven collapse of activity. It expects a 5.8% growth in 2021 (from a sharply revised low base of 2020), but this is conditional on an improvement in the health crisis.

Despite a widely expected sluggish US 1Q20 reporting season (consensus: -11% YoY) amid an unprecedented nature of COVID-19 outbreak, the Dow rallied 2% or 500 pts at 23900. Overall sentiment was boosted by positive Johnson&Johnson earnings report and news that the spread of the virus has peaked in Europe and is levelling of in the US as authorities around the world prepare plans to ease restrictions and reopen businesses as soon as possible.

Malaysia: In tandem with higher regional markets, KLCI jumped 15.6 pts to 1371.7, led by active buying interests on index-linked heavyweights i.e. PCHEM, AIRPORT, MAYBANK, CIMB and TENAGA. Trading volume increased to 4.79bn shares worth RM2.8bn as compared to Monday’s 3.11bn shares worth RM1.51bn. Market breadth was bullish with 706 gainers as compared to 203 losers.

TECHNICAL OUTLOOK: KLCI

Following the strong close above 30D SMA yesterday, the odds are getting higher for the KLCI to advance within the 1369-1419 (16 March gap) resistance band. Meanwhile, the MACD remains firmly above the signal line whilst the RSI and stochastic indicators appear to be turning up again, implying the index may continue to work its way higher, barring a decisive breakdown below the 10D SMA support near 1351. Lower support is set at 1325 (20D SMA).

MARKET OUTLOOK

In wake of overnight strong Dow performance and signs of the coronavirus outbreak peaking in certain hotspots in the world, KLCI could creep higher to retest 1400 zones before the next meaningful pullback begins. Nevertheless, we reiterate SELL INTO RALLY as the risk to reward perspective is getting more risky amid IMF’s bearish global economic outlook and sluggish oil prices coupled with the negative impact on Malaysia 2020 GDP (HLIB projection - 4%) and corporate earnings due to possibility of further MCO extensions and a greater degree of relaxation will only happen when new COVID-19 cases sustainably falls below 50 (from current 150-200 range.

Source: Hong Leong Investment Bank Research - 15 Apr 2020