MARKET REVIEW

Global: Asian markets ended lower amid news of spiking Covid-19 cases in the US and major hotspots in Asia coupled with uncertainty over prospects for more financial aid to Americans and U.S. businesses. Sentiment was also dampened by renewed US-China anguish after the US instructed China to close its consulate in Houston. The Dow fell 46 pts in early trade after the US ordered China to close its consulate in Houston in a sign of worsening bilateral relations. However, the benchmark recovered to end 165 pts higher at 27005 boosted by news of a coronavirus vaccine deal between the U.S. government and Pfizer and BioNTech and apparent progress on U.S. stimulus negotiations coupled with buying in utilities and defensive sectors as US -China tensions worsen.

Malaysia. Tracking lower regional markets and profit-taking in banking and glove stocks, KLCI retreated 9 pts to end at 1587. Trading volume inched up to 9.37bn shares valued at RM4.89bn against Tuesday’s 9.34bn shares worth RM5.39bn as trading interests shifted from glove stocks to pharmaceutical-related shares following news that two GLC-owned pharmaceutical companies (i.e. Duapharma and Pharmaniaga) have been identified to do the "fill and finish" process for the Covid-19 vaccine once it's available. Market breadth was negative with 510 gainers vs 557 losers.

TECHNICAL OUTLOOK: KLCI

After hitting a 6M high at 1617 (14 July), KLCI retreated to a low of 1563 (17 July low) before ending sideways at 1587 yesterday. We reiterate that current consolidation mode would prevail and is healthy to neutralize overbought technical momentum for a more sustained uptrend going forward. Key resistances are near 1600 and 1617 and a decisive close above the 1617 would open the door for higher targets at 1633 (upper BB) and 1679 (200W SMA) zones. On the flip side, a decisive breakdown below 1563 (17 July low) would trigger more selldown towards 1546 (30D SMA and support trendline), 1525 (50W SMA) and 1514 (50d SMA) territory.

MARKET OUTLOOK

In a nutshell, we are mindful of downside risks to the domestic economy and corporate earnings amid soaring fears of 2nd wave infections, intensifying US-China geopolitical tensions coupled with lingering political uncertainty. Moreover, with Top Glove and Hartalega collectively contributing about 12% of the FBMKLCI’s market capitalization as of yesterday, volatility in their share prices will continue to influence KLCI short term performance. We expect an extended healthy market consolidation to neutralize overbought technical momentum for a more sustained uptrend going forward. Key resistances are 1600, 1617, and 1633 levels whilst supports fall at 1563, 1546, and 1525 zones

Source: Hong Leong Investment Bank Research - 23 Jul 2020