Market Observation for June 2019


Global stock market for the month of May reflected the curse of “sell in May, go away” seasonal expectation. The entire month of May has seen global stock market slipping all the way down. Partly to blame is the rekindle trade war between US and China.  Hong Kong market has its  worst performing month since October 2018, slipped away 8.9% for the month. Those who have left China market investment earlier has been saved with their profit pocketed. Hong Kong market holds China H Share that is easily accessible for foreigner buyers. This is also where most foreign fund houses focused to accumulate their China investment.

Hong Kong market has its worst performance month since October 2018

China Market Sceneries

This Hong Kong market retrieve might have reflected my fear of China fiscal stimulus losing its long-term effect in my previous blog. Recent China PMI data released seems to confirm this economic activity slow down trending. Unless China would have worked out its own miracle for self-help, this down trending is unavoidable especially after Trump has threatened to impose tariff hike for the rest of the 300 billion China import products later on.

Reportedly, China is considering restricting the export of rare earth to US as a retaliation for trade war. Rare earth is used as the main component for the production of many advance technological devices such as handphone, computer, rechargeable battery, etc.  If this is true, trade war or recently developed into so called the “tech war” will be much more complicated.

US Performance

Over the US side, S&P 500 is the worst performing market in the US (Chart B). Most US equity markets were also bearishly trending down. Gold index price also verifies that’s a danger for equity market ahead by a sudden reversing of a descending triangle trend breaking above the resistance line on the last trading day on May 31st (Chart C).

Chart B ~ S&P 500 Market is the worst performance US market for May 2019

Interesting to note that gold Futures has actually been forming a descending symmetrical triangle, seemingly showing certain strength of the US dollar or the strength of the US economy. Gold was about to accept the fact and break down below its support level at the end of the descending triangle shape.

Chart C ~ Gold Futures index had a sudden break out above resistance line

However, it surprised everyone by breaking up above its resistance line suddenly.  It seems to have divorced itself from the inverse relationship from the influence of dollar’s strength, and locked itself responding to the sudden drop of equity market last Friday.   

But it could be a false break up though. When equity market regains its lost ground on Monday, gold will drop back to where it was. But if the cause of the equity market drops last Friday was from Trump firing his ammunition fully to all direction, including China to Mexico, India and possibly to Europe later on in a short span, US equity market will continue to drop further down next week or so.  Then Gold will remain on top of that territory. For the month of June market movement, gold indicator will be the main pointer to market future direction. 

Chart D ~ USD index (UUP) still bullish within uptrend double lines

Fundamentally speaking, the dollar Bullish Fund doesn’t think that’s any weaknesses in the US economy. It is still trending higher through double uptrend channels even though Fed has decided to stop raising interest rate for considerable period of time (Chart D).  It will be interesting to note if the US Dollar strength begins to move side way, then a down trend indicating weakness of the US economy will possibly be the next development.

Malaysia Market Trending

While most global market consistently dropping for the month of May, KLSE is a rare market that has several consecutive bullish trading sessions rebounded until above its monthly loss on the last few trading sessions of the month (Chart E). This phenomenon seems to reveal that Malaysia could be one of the markets that benefits from the trade war between China and US.

Chart E~ Malaysia could be the beneficiary of trade war between US and China

Analysts believe that this bullish trend could possibly continue when market opens next week as well as for the month of June. Possibly the worst for Malaysia market is over by now, if you have invested into Malaysia market as advised in my previous blog, the fruit will be possibly shown itself later on. But mind you also, room for the upside space is nevertheless limited too due to external factors. We should not be expecting a clear sky ahead of us too.

The above developments are those interesting scenarios we are going to observe for the month of June. Stay tune and invest safely!

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Disclaimer

The view and opinion expressed are personal views of the author and are subject to change based on market and other conditions.  This write up does not constitute sole advice for investment decision. Investors are advised to do further reading and research to conclude individual decision.

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