MARKET REVIEW

Global: Bucking an overnight 228-pt rally on Dow, Asian markets ended mostly lower, led by a 4.5% plunge in China’s SHCOMP, as investors cooled down their buying spree on signs of policy tightening after a stronger-than-expected 2Q20 GDP. Sentiment was also dampened by escalating US-China tensions and regulators stepping up efforts including punishing illegal margin trading activities to contain hot money inflows into the stock market.

The Dow slipped 135 pts to 26734, snapping a 4-day winning streak, as investors parsed mixed corporate earnings reports and heightened US-China relationships. Meanwhile, despite a better-than-expected June retail sales, sentiment was affected by elevated levels of unemployment claims, triggering concerns about the economic toll from rising coronavirus cases and potential of rolling back reopening measures that will undercut the budding recovery.

Malaysia. Bucking overnight rally from Dow, KLCI tumbled 12.1 pts to 1573.5, as sentiment was dampened by a trading halt on Bursa Malaysia since 3.30pm due to technical issue coupled with excessive selling pressures on index-linked Top Glove (the US Customs and Border Protection has placed a detention order on disposable gloves manufactured by its 2 subsidiaries) and Hartalega. Trading volume increased to 9.29bn shares valued at RM4.21bn against Wednesday’s 8.24bn shares worth RM5.01bn. Market breadth was negative with 240 gainers as compared to 792 losers.

TECHNICAL OUTLOOK: KLCI

After hitting a low of 1476 (29 June), KLCI staged a 141-pt relief rally to a 6M high at 1617 (14 July) before retreating lower again on profit taking at 1574 yesterday. The double top pattern and negative technical indicators are likely to put the bears in a strong position to trigger more selldown towards 1563 (38.2% FR), 1543 (30D SMA) and 1533 (LT downtrend line from 1896) levels. On the flipside, we will turn outright bullish on a reclaim above 1591 (9 June high) and 1617 (14 July ) levels, respectively.

MARKET OUTLOOK

Tracking overnight Dow’s and oil prices retracements coupled with expectations of persistent selling pressures on Top Glove and other component stocks when Bursa Malaysia resumes trading today after an unexpected trading halt, KLCI is likely to witness wild swings trading pattern amid overbought daily and weekly slow stochastic readings. Key supports are near 1563-1543-1533 whilst resistances are situated at 1591-1617-1633 levels. On stock selection, HLIB Research remains upbeat on Top Glove (BUY-TP RM31.31) as management has hired an experienced consultant to resolve the detention order on disposable gloves matter, targeted within 2-4 weeks. We are hopeful for this to be resolved as any delays will only further widen the global demand-supply gap for gloves amid Covid- 19. Technically, the stock is expected to witness heavy selling pressure today but we believe any share price weakness presents an opportune time to accumulate. Key supports re situated near RM19.00-18.50-17.70 whilst resistances are situated at RM22.00-24.00- 25.00. Cut loss at RM17.40

Source: Hong Leong Investment Bank Research - 23 Jul 2020