Market review

• Asian markets ended relatively mixed on profit taking pullback after enjoying hefty gains in the post Brexit rally, ahead of expectations that there will be a series of easing measures by central banks across the world. Sentiment was also affected by a downbeat outlook by IMF on global economic growth prospects.

• Tracking regional markets, KLCI fell as much as 6.6 pts intraday following news that the US Department of Justice has moved to seize over US$1bn in assets linked to 1MDB. However, selected bargain hunting on FBM30 stocks pared the losses to only 0.9-pt. Market breadth was positive with 435 gainers as compared to 366 losers, with active interests on lower liners and penny stocks.

• Wall St continued to show gain traction in wake of positive results such as Microsoft and Morgan Stanley, with investors resuming a risk-on approach to push Dow (+36 to 18595) to new high for the 7th day in a row and extended its winning streak for the 9th straight sessions.

Technical Insights

• Profit taking pullback to continue

• Despite ending 0.9-pt lower, the index still managed to close above the 1666 (200-d SMA) levels and confi rmed a “doubl e bottom” formation, which signals a major trend reversal in the short to medium term. Further upside targets lie at 1684 (61.8% FR), 1700 (psychological barrier) and 1729 (14 Apr high).

• However, after soaring 3.6% from Brexit low of 1611 (24 June), technical indicators are getting grossly overbought and pointing towards potential profit taking pullback. Immediate support is 1656 (38.2% FR). A decisive fall below 1656 will trigger short term retracement to lower supports at 1645 (30-d SMA) and 1639 (23.6% FR).

Market Strategy

• Despite recent optimism of recent better-than-expected US economic data and results, hopes of more stimulus from central banks and governments and expectations of more mega project roll-outs by Government in the near term, KLCI may witness near term profit taking pullback as sentiment may be affected by the revival of 1MDB saga after the US Department of Justice has moved to seize over US$1bn in assets linked to 1MDB and stretched technical indicators.

• We had close our position on HSL (3.5% return) amid expiry.

• Stock on radar (please refer separate Trading idea report). We like Salcon as it is one of the major beneficiaries of Malaysia water restructuring play, supported by huge warchest of RM0.295/share and attractive yield of approximately of 5%.

Source: Hong Leong Investment Bank Research - 21 Jul 2016