MARKET REVIEW

Global: Asian markets ended mixed after an abrupt US order for closure of the Chinese consulate in Houston, stoking geopolitical tensions and drawing condemnation from China’s foreign ministry as it warned of firm countermeasures. However, the fall was cushioned by hopes of more fiscal stimulus in the US and optimism about a vaccine.

Overnight, the Dow tumbled 353 pts to 26552, triggered by soaring weekly jobless claims rekindling concerns about the stalling US economic recovery. Sentiment was further dampened by stumbling technology stocks (Nasdaq tumbled 2.3% to 10461) and the relentless spread of the virus continues.

Malaysia. Bucking regional markets, KLCI rallied 19.4 pts to 1606 amid renewed buying interests on glove and banking shares. Trading volume surged 29% to 12.12bn shares worth RM6.65bn amid robust buying interests on BIOHLDG (after securing a 5Y contract worth RM2.1bn to supply ingredients for health food and nutritional meals to private and public sectors in China, which is subject to annual renewal) and face mask related stocks as the use of face masks in crowded public areas and public transport will be made mandatory from 1 Aug. Market breadth was positive with 599 gainers vs 452 losers.

TECHNICAL OUTLOOK: KLCI

After hitting a 6M high at 1617 (14 July), KLCI retreated to a low of 1563 (17 July low) and trended sideways before staging a strong close above 10D SMA and 1600 psychological barrier yesterday. We reiterate that unless a decisive breakout above immediate 1617 neckline resistance, current healthy consolidation mode would prevail to neutralize overbought technical momentum for a more sustained uptrend going forward. A strong breakout above 1617 would open the door for higher targets at 1637 (weekly upper BB) and 1679 (200W SMA) zones. On the flip side, a rapid breakdown below 1563 would trigger more retracements to 1548 (30D SMA and support trendline) and 1518 (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. Hence, we expect an extended healthy market consolidation to neutralize overbought technical momentum for a more sustained uptrend going forward, with key resistances pegged at 1617 and 1637 levels whilst supports fall at 1593 and 1563 zones. Overall, the healthcare sector such as the glove and pharmaceutical stocks should continue to outperform amid the virus resurgence and potential vaccine progress in the long term.

Source: Hong Leong Investment Bank Research - 24 Jul 2020