Market Review

• Following the recovery on Wall Street amid bargain hunting activities, Asian stock markets were traded mostly higher led by Nikkei 225 (+0.19%) after Toshiba and Japanese automakers were traded on a positive tone.

• With the released of better-than-expected Malaysia’s GDP data, coupled with the rebound on overseas markets, the FBM KLCI inched marginally higher by 0.06% to 1,768.28 pts. Market breadth was positive, while market volumes were above 3.00b at 3.27b. Small caps stocks under the steel and semiconductor sectors were traded actively.

• Following the knee-jerk sell down on Thursday, the Wall Street managed to return into a positive region amid bargain hunting activities; the Dow surged 0.69% to 20,804.84 pts, but dropped 0.44% on the weekly basis. Meanwhile, VIX index has pulled back by 17.87% after trading sentiment turned bullish.

Technical View

Softer weekly indicators and bearish divergence on daily indicators

• The weekly MACD Histogram has turned slightly lower last week, while daily MACD Line has indicated a potential bearish divergence signal; KLCI’s upside may be capped around 1,780. Meanwhile, support will be set around 1,760.

Market Outlook

• In the U.S., We expect the volatility would remain over the near term driven by the uncertain U.S. political event, while investors may start to position themselves and look forward on the FOMC meeting decision in June. The Dow’s likely to range between 20,500-21,000.

• While market sentiments has stabilized after a rebound last week, we opine that traders’ are likely to deploy sell-into strength strategy as the FBM KLCI’s upside is likely to be capped around the 1,780 level amid a bearish divergence signal on MACD Indicator. Nevertheless, traders may focus on stocks that will be reporting results this week.

• Closed position: We took profit on ENGTEX (16.7% gain) on 19 May after hitting LT target at RM1.47.

• Trading Buy - TALIWRK. Taliworks is an appealing investment (HLIB has a BUY rating with SOP target price of RM1.85) case given its concession businesses in different sectors which enjoys stable growth profile coupled with reduced vulnerability to idiosyncratic risk. Besides, its attractive projected FY17-18 dividend yield of 5.4% and a deeply oversold weekly slow stochastic should provide a decent support to the share price. In a nutshell, Taliworks remains the best proxy to an eventual settlement of Selangor’s water restructuring, with a possible one-off special dividend after recouping the said trade receivables (amounting to c.RM471m and this amount is about 26% of the former’s market capitalization).

Source: Hong Leong Investment Bank Research - 22 May 2017