MARKET REVIEW

Despite Dow’s technical rebound overnight, Asia markets traded mixed as investors sifted through fresh uncertainties surrounding the Brexit's impasse and PM Theresa May's no confidence vote. Sentiment was also dampened by concerns over global growth but further downside was offset by hopes that China’s policymakers are pledging to step up stimulus measures to kickstart the cooling economy. Tracking the regional performances, KLCI shed 6.3 pts or 0.38% to 1673.1, led by selloff in TENAGA, PMETAL, SIME, PBBANK and CIMB. Trading volume eased to 2.31bn shares worth RM1.87bn against Tuesday’s 2.40bn shares worth RM1.87bn. Nevertheless, market breadth was positive with 438 gainers vs 358 losers amid positive undertones from the FBM Mid 70 (+0.44%), FBM Small Cap (+0.81%) and FBM ACE (+0.32%) stocks. Despite lingering concern over Brexit saga after May won the confidence vote and opens cross-party Brexit talks, the Dow rallied as much as 222 pts to 24289 amid upbeat earnings from Bank of America and Goldman Sachs coupled with a US$22bn buyout offer by financial technology provider Fiserv Inc for First Data Corp. However, profit taking reduced pared gains to 142 pts at 24207 as investors deploying risk-off mode at the start of the session coupled with uncertainty from a partial government shutdown.

TECHNICAL OUTLOOK: KLCI

Bursa Malaysia remains in a sideways consolidation mode as the benchmark KLCI continue to trend within the tight range between the 1666-1687 levels for the 10th consecutive days. Given the tepid technical readings and its failure to breach the downtrend line, KLCI is likely to stay sideways with overhead resistances at 1683-1700 while supports will be located near 1652- 1666 levels.

For Bursa Malaysia, we expect more tight range bound trade as concerns over moderating global growth. However, downside risks could be offset by hopes that China may introduce more stimulus measures to cushion the slowdown, positive optimism over the progress in US China trade talks as well as a more dovish Fed. On the back of back-to-back gains on overnight Dow and oil prices, traders may continue to lookout for rotational plays within the O&G, construction, automotive, consumer and airlines sectors amid strengthening ringgit and recovery in oil prices.

TECHNICAL OUTLOOK: DOW JONES

The Dow extended the recent V-shape rebound after hitting 52W low of 21712 on 26 Dec, surpassing the 24000 psychological level and supported by the positive MACD Line (although MACD histogram is showing mild signs of flattening) and RSI but a relatively overbought stochastic oscillator. With the mixed technical readings at this juncture, we believe the recent rebound could slow down as the key index is trading nearer to the resistance level of 24400, while next resistance will be set around 24900-25000. The Dow’s key support will be located around the region of 23300-23700.

With China vowing to put in more stimulus to support the slowing economy, it could lift global stock markets higher at least for the near term, eventually spilling over towards US stock markets. Nonetheless, we believe the Wall Street could be due for volatility ahead of the upcoming reporting season this week. Also, market participants could be eyeing on the federal government partial shutdown (dragged on into the 27th day), stoking fears the shutdown could drag on for a long time as consensus estimates that every two weeks of a shutdown trims 0.1 percentage points from growth due to delays in spending and investment.

Source: Hong Leong Investment Bank Research - 17 Jan 2019