Bursa Daily Market Outlook

Buying Interest to Soften Following Tax Announcement

Market Review

• Key regional benchmark indices ended on a solid positive note amid better-than-expected corporate earnings in the US, while most of the market participants are awaiting next catalyst, which will be the announcement on tax reforms by Trump. Nikkei 225 added 1.10%, while Hang Seng Index rose 0.50%.

• Shares on the local front managed to gain more traction on the broader market with the FBM Small Cap rising another 0.38%, while the FBM KLCI advanced only by 0.18%. Market volumes returned above 3.0b mark at 3.55b, worth RM3.13b. Market breadth was positive with a ratio of 5-to-4. A strengthening bias in ringgit towards 4.35 may benefit companies with high US$ input cost such as the automotive and aviation sector.

• Wall Street ended on a flattish tone after US Treasury Secretary Mnuchin unveiled the Trump's tax plan that US corporate tax may be slashed to 15%. However, the lack of details on the corporate tax set a cautious tone among the investors; the Dow and S&P500 slipped 0.10% and 0.05% respectively.

Technical View

FBM KLCI Hovering Above 10-D SMA

• Despite the expected slowdown in buying activities, the FBM KLCI may retest the next resistance of 1,770-1,780 as the MACD Indicator is trending higher, accompanied by positive oscillators (RSI) movement.

Market Outlook

• While traders put a pause on the recent short term rally following the tax plan announcement, we think the market may re-focus with the on-going earnings season. The Dow's resistance will be seen near 21,000-21,178. Meanwhile, after the KLCI surged consecutively for 4 trading days, index heavyweights may take a breather near the 1,770 level. On the broader market, investors are likely to extend their focus on technology and construction sector after forming an uptrend move on both the sub-indices.

• Closed positions (refer FIG4). We took profit on IFCAMSC after share prices rallied 5.9% in one day and BIMB (0.0% gain) due to expiry.

• Trading Buy - D&O. D & O Green Technologies Berhad is involved in semiconductor and LED business and offers comprehensive product range for automotive, consumer and communications sectors under the brand of DOMINANT. Since 3 years ago, D&O has gradually shifted their business to automotive segments from the general lighting and LED TV markets. Consequently, operating profit grew at a 61% CAGR from RM8m (FY13) to RM32m (FY16). Moreover, with the emergence of the Epistar Corp as one of the shareholders in Dominant Opto Technologies Sdn. Bhd., we may expect future growth to be sustainable amid positive synergies generated by tapping along with the worldwide distribution channel

Source: Hong Leong Investment Bank Research - 27 Apr 2017