MARKET REVIEW

Global: Supported by a gradual improvement in China’s May manufacturing data, Asian markets ended higher as investors took some solace in the absence of more aggressive measures from Washington following China’s security legislation for Hong Kong. Heartened by positive May ISM data, the Dow rose 92 pts to 25475 as markets appeared to focus on re-opening from the COVID-19 lockdowns, overshadowing jitters from violent demonstrations last week and rising US-China tensions after China ordered state-owned firms to halt purchases of U.S. soybeans and pork, in retaliation for Trump’s announcement that he would end special treatment for Hong Kong.

Malaysia: Spearheaded by strong gains in TOPGLOVE, HARTA, IHH, and TENAGA. KLCI surged 16.9 pts to 1490.1, tracking higher regional markets as investors cheered the reopening of global economies and in anticipation of the conditional MCO (ending 9 June) will not be extended as Malaysia has managed to contain and flatten the COVID-19 curve. Trading volume soared to 10.3 bn shares valued at RM6.7bn against last Friday’s 9.0bn shares worth RM9.3bn. Market breadth was negative with 511 gainers as compared to 574 losers.

TECHNICAL OUTLOOK: KLCI

After successfully refilling the 1460-1480 gap (9 Mar), the odds are getting higher for KLCI to advance further towards our envisaged 1500 to 1518 (200D SMA) zones. A decisive breakout above the 200D SMA would confirm that the bulls are in control to spur KLCI to one more leg up towards 1550 (upper channel) and 1600 psychological barriers. Conversely, violating key supports at 1448 (100D SMA) and 1429 (support trendline) could suggest that the market is taking a breather and the bears are in the driving seat again, potentially trigger another down leg to retest 1400 and 1370 (50D SMA) levels.

MARKET OUTLOOK

Technically, KLCI could revisit the 1500-1520 levels in the short term as the great disconnect between ongoing liquidity-driven markets and economy continues, given that investors appear to focus on the spillover optimism from pandemic-driven plunge amid re opening of global economies, easing lockdowns and the progress on vaccine development. Meanwhile, glove stocks could witness potential profit taking correction amid stratospheric valuations and steeply overbought levels after recent unprecedented rally following market talks that investment banks are going to implement margin capping for glove counters.

CLOSED POSITION

Yesterday, we had squared off our position on CCM (14% gain, hit R2 upside target).

Source: Hong Leong Investment Bank Research - 2 Jun 2020