MARKET REVIEW

Global: Bucking the US-China turmoil after China said it would impose new national security legislation on Hong Kong, Asian markets ended higher amid the gradual re opening of global economy and news of more monetary and fiscal stimulus from China, Japan and Singapore. Sentiment was also boosted by fresh coronavirus vaccine news as American biotech firm Novavax said it has started the first human study of its experimental coronavirus vaccine (expects initial results in July). After returning from the Memorial Day holiday, the Dow rallied 530 pts to 24995 as encouraging COVID-19 vaccine development and optimism for the global economy reopening lifted spirits, overlooking simmering US-China tensions following Bloomberg report on Trump’s administration weighing a range of sanctions on Chinese officials, businesses and financial institutions.

Malaysia: KLCI lost 15.4 pts to 1436.8 (+33.4 pts WoW) last Friday, halting its 8th day winning streak after China proposed to impose the controversial national security laws on Hong Kong. Ahead of the long Raya holidays, trading volume decreased to 6.69bn shares worth RM4.19bn as compared to Thursday’s 7.15bn shares valued at RM4.66bn. Market breadth was negative with 289 gainers as compared to 801 losers. Market breadth was positive with 558 gainers as compared to 430 losers.

TECHNICAL OUTLOOK: KLCI

After staging a bullish downtrend resistance breakout and surpassed 1429 (20 Apr high) neckline hurdles, KLCI hit a high of 1455 or 100D SMA (21 May) before retreating lower at 1436 (22 May) amid Raya holidays and escalating US-China tensions. For now, if the index can reclaim above the 100-day SMA swiftly (a key technical level it has not closed above since 22 Jan), the short term uptrend from 1208 (COVID-19 low on 19 Mar) remains intact with a clear path to retest 1500 to 1521 (200D SMA) in the next few weeks. Conversely, the formation of a Tweezer Top bearish reversal pattern on 22 May could suggest that the market is losing upwards momentum, after surging 20% from COVID-19 bottom of 1208. Breaking below the key 1412 (50% FR and support trendline) levels could imply that the bears are in the driving seat again, heading lower at 1400 and 1364 (38.2% FR) levels.

MARKET OUTLOOK

In wake of overnight 2.2% surge on Dow and 1.8% rally in Brent oil prices, we expect KLCI to stage a technical rebound to retest 1455. Nevertheless, further rally could be capped by ongoing results season and escalating US-China tensions. Meanwhile, potential good news revolves around the possibility of favourable developments for the HSR project as the end May review deadline nears may reignite trading interests on potenital beneficiaries such as the project delivery partners (GAMUDA, MRCB, YTL), building material stocks (MCEMENT, ANNJOO, HUMEIND, OKA, KIMLUN), property stocks (EKOVEST, MATRIX and IWCITY), consultancy jobs (HSSEB) and piling/foundation works (ECONBHD, ADVANCON).

CLOSED POSITION

Last Friday, we had squared off our positions on MEDIA (13.3% gain, hit R1 upside target).

Source: Hong Leong Investment Bank Research - 27 May 2020