MARKET REVIEW

Global. Despite a 0.6% rally on China’s SHCOMP amid a strong July industrial profits and positive reforms to the country’s tech-heavy ChiNext board, most of the Asian markets ended mixed on lingering US-China geopolitical tension in the South China Sea and awaiting Powell’s speech last night about the Fed’s monetary policy framework review. Overnight, the Dow surged as much as 303 pts after the Fed rolled rewrite a new approach to its dual role of achieving maximum employment and adopt an average inflation target, as well as a promising development in the fight to contain the coronavirus pandemic. However, the gains were reduced to 160 pts at 28492 after Nancy Pelosi issued a statement saying Democrats and Republicans remain far apart over the next stimulus bill.

Malaysia. After a 3-day slide of 27.5 pts, KLCI inched up 5.2 pts at 1554.8, mainly lifted by telcos, utility and glove companies. Trading volume soared to 13.7bn shares valued at RM5.6bn against Wednesday’s 12.1bn shares worth RM6.2bn, thanks to the focus on ACE and lower liners. Market breadth was negative with 545 gainers as compared to 580 losers.

Yesterday, foreigners (-RM135m) and local retailers (-RM16m) were the net sellers whilst local institutional investors (+RM151m) were the main pillars of buying force on Bursa Malaysia. YTD, foreigners net sold RM20.2bn shares compared with net purchases by local institutional funds (RM9.9bn) and retailers (RM10.3bn).

TECHNICAL OUTLOOK: KLCI

From a YTD peak of 1618 (28 July), KLCI plunged as much as 80 pts to 1538 (26 Aug low) before staging a mild rebound to finish at 1554.8, falling below the multiple key 20D/50D SMAs. Follwoing the major breakdowns, KLCI is likely to remain in consolidation mode pending further fresh catalysts, with lower supports pegged at 1538 and 1510 (200D SMA) levels. Only a strong rebound above 50D SMA or 1562 will boost the chances to retest 1572 (20D SMA) and 1591 (9 June high) upside zones.

Daily KLCI chart: Critical support at 1538 to prevent further selloff towards 1500-1510

MARKET OUTLOOK

The overnight rally on Wall Street should cushion the downside risk for KLCI today, but undertone remains cautious amid a dearth positive catalysts. KLCI’s recent fall below 20D/50 SMA supports could signal an extended consolidation mode amid a subdued August reporting season, domestic political uncertainty, the resurgence of Covid-19 cases in global hotspots coupled with simmering US-China geopolitical tension. However, market volume will remain robust at ~11bn shares (5d average), thanks to the strong trading commitments in small cap and ACE Market stocks. Key supports are situated at 1548- 1538-1510 whilst resistances are pegged at 1562-1572-1591 levels.

Source: Hong Leong Investment Bank Research - 28 Aug 2020