MARKET REVIEW

Global. Tracking heavy losses in Wall St last week and a 1.9% slump in China’s SHCOMP, Asian markets were lower amid the US-China intensified tensions after Reuters reported the Pentagon was considering to blacklist China's largest chipmaker,SMIC, overshadowed a better-than-expected China’s Aug trade data.

Ahead of the Labour Day (7 Sep), the Dow lost 1.8% whilst the tech-heavy Nasdaq Composite and S&P 500 tumbled 3.3% and 2.3% WoW, respectively, amid an extended slide in technology heavyweights due to concerns about high valuations, a slower -than expected increase in Aug nonfarm payrolls, deadlock for a fresh stimulus measures and looming uncertainty ahead of the US presidential election on 3 Nov. At the time of writing, the Dow, S&P and Nasdaq futures all rose 0.9%, 0.6% and 0.1% respectively, on technical rebound in line with higher European markets overnight.

Malaysia. Ahead of the MPC meeting on 10 Sep (economists are split over whether a 0.25% cut is warranted), KLCI inched up 0.5-pt to 1516.4 after hovering within 1507-1521 range. Trading volume was 7bn shares worth RM3.4bn, the lowest in two months in tandem with the ongoing market consolidation after peaking at ~RM11bn in early August when market volume was near 27bn shares. Market breadth was bearish with 361 gainers vs 765 losers.

Yesterday, local institutional investors (RM3m) and retailers (RM69m) were the buyers whilst foreigners sold RM72m equities. YTD, foreigners net sold RM20.97bn shares compared with net purchases by local institutional funds (RM9.98bn) and retailers (RM10.98bn).

TECHNICAL OUTLOOK: KLCI

Despite staging a technical rebound above 1498 (4 Sep low) and 1508 (200D SMA), KLCI is not out of the woods yet in this seasonally weak September outing (KLCI tumbled ~1.7% from 2000-2019), trapping in a downtrend channel after sinking 102 pts from the YTD peak of 1618 (28 July) to 1516 yesterday. Failure to hold at 1508 would signal that the index is ready to slip lower at 1498 and 1480 levels (30W SMA). On the contrary, only a decisive reclaim above key 1542 (10D SMA) and 1556 (downtrend channel) hurdles would give the bulls a big boost toward 1568 (30D SMA), 1590 (100W SMA) and 1600 resistance levels.

Daily KLCI Chart: Still Trapped in the Downtrend Channel

MARKET OUTLOOK

Ahead of the MPC meeting on 10 Sep, KLCI is expected to extend its consolidation mode with (supports at 1480-1508; resistances 1542-1568 levels) as volatility remains elevated amid the domestic political uncertainty (ahead of the 26 Sep Sabah state election), the resurgence of Covid-19 cases in global hotspots, heightened US-China geopolitical tension, wild swings in Wall St’s amplified by worries of a Covid-19 resurgence in the fall and winter (although accelerated vaccine development timelines may cushion sharp correction), the stalemate in Congress over additional pandemic aid and political uncertainty ahead of the US presidential election on 3 Nov.

Source: Hong Leong Investment Bank Research - 8 Sept 2020