MARKET REVIEW

In line with the overnight gains on Wall Street, Asian markets opened higher in early trades after Trump further stressed that US and Chinese officials could still strike a trade deal. However, profit taking activities narrowed the gains as China’s industrial output, retail sales and investment data in April were all worse than economists’ forecast, reigniting fears that the risk of a prolonged economic downturn has started even before the implementation of the May’s tariffs.

Tracking overnight Dow and regional bounce stemming from softer rhetoric by Trump on the trade dispute with Beijing, KLCI rallied 12.2 pts to 1611.4, led by strong gains in DIALOG (+21 sen to RM3.28), HARTA (+27 sen to RM5.26), TOPGLOV (+19 sen to RM4.97), DIGI (+13 sen to RM4.70) and AXIATA (+12 sen to RM4.42). Market breadth was positive with 599 gainers as compared to 276 losers.

The Dow fell as much as 191 pts following news of a weaker-than-expected US retail sales and a set of sluggish China economic data stoked fears that the US-China trade war is dragging down global economic growth. Nevertheless, the index staged a 307-pt rebound to end 116 pts higher at 25648 amid news that the Trump administration plans to delay a decision on instituting new EU tariffs on car and auto part imports for up to six months.

TECHNICAL OUTLOOK: KLCI

After plunging 11.8% or 205 pts from YTD high of 1732.3 (22 Feb) to a low of 1572 (14 May), KLCI staged a 5.5%or 39 pts relief rally to end at 1611.4 on 15 May. In wake of the Morning star candlestick and bottoming up indicators coupled with an extended rebound from Dow overnight, we see further legs in the current rebound towards 1625 (20D SMA) and 1630 (30D SMA) levels, with stiffer resistance at 1644 (50D SMA). Key supports are situated at 1600 and 1588 (hourly Lower Bollinger band).

The uncertain trade developments could weigh on Bursa Malaysia in the short term, given the heightened US-China trade disputes and tit-for-tat retaliations. Nevertheless, the 39-pt recovery from 44M low of 1572 has injected some kind of stability after recent bouts of foreign selling. Despite external hiccups, undervalued export oriented stocks in technology and gloves sectors (on the back of weakening ringgit) and oil & gas stocks (amid firmer oil prices), coupled with the defensive pharmaceutical companies are likely to stay in focus.

TECHNICAL OUTLOOK: DOW JONES

Following a 2-day recovery, the Dow has crossed above the 200D SMA (25421), with major technical indicators are finally hooking up, suggesting that the technical rebound could sustain over the near term. Resistance will be located around 25800/26000/26200, while supports are pegged at 25400/25200/25000.

We continue to detect market complacency on Wall Street following all three market indices returned to the black after Trump’s less rhetoric tweets in the last two days, and news that the Trump administration plans to delay a decision on instituting new EU tariffs on car and auto part imports for up to six months. Overall, trade negotiations between the US and China have not yielded any concrete results, especially those related to theft of intellectual property and forced technology transfer. Depending the negotiation outcome in the next 3-4 weeks (ahead of the meeting with President Xi during the G20 Summit on 28-29 June), the US President is likely to impose the 25% tariff on the remaining USD320bn worth of imports from China. Hence, market volatility will prevail although on a less fierce magnitude after the recent rout.

Source: Hong Leong Investment Bank Research - 23 May 2019