Market Review

• Tracking the recovery in US markets, Asian equities were mostly higher led by Hang Seng Index with an increase of 0.86%, while Nikkei 225 added 0.45%. Meanwhile, Kospi Index rose 0.68% despite a missile test by North Korea over the weekend.

• On the local front, the buying sentiments were subdued throughout the trading session before ending at an intraday high of 1,774.95 pts (+0.38%) led by Petronas related index heavyweights such as Petronas Gas, Petronas Dagangan and Petronas Chemical on the back of a recovery in oil price ahead of OPEC meeting on 25th May. Market breadth stayed positive with gainers led losers by a ratio of 5-to-4, while overall traded volumes increased to 4.10b vs. 3.27b on Friday.

• Although investors were concerned about the US political turmoil, focus has turned to the US$110b weapon deal between US and Saudi Arabia, which has seen buying interest emerged among defense stocks. The Dow gained 0.43%, while S&P500 added 0.52%.

Technical View

Weekly Stochastics overbought with daily divergence signal

• The weekly Stochastics indicator is hovering above 70, while the daily MACD Line is suggesting a bearish divergence signal on the FBM KLCI. We opine that the KLCI is toppish and traders may adopt selling-into strength strategy around 1,780.

Market Outlook

• We see signs of relief buying after the political scandal in US and this may support the Dow over the immediate term to revisit the all-time-high of 21,178. Also, energy shares are likely to focus on the back of slight recovery on crude oil prices ahead of the OPEC meeting.

• Meanwhile, buying flow on the local bourse should remain steady, tracking the positive recovery on Wall Street, coupled with the steadier crude oil prices. We opine that O&G sector could see some revival in trading interest following softer focus over the past weeks.

• Trading Buy - COMFORT. Comfort Gloves Berhad (CGB) offers wide range of quality gloves such as Nitrile and Latex gloves and offers Powdered and powder free examination gloves in different length and color for different application. CGB is planning to install additional 8 production lines in FY18 to total production lines of 48, which will boost their capacity by at least 20%. Also, we opine that the management would be able to pass on the cost in the upcoming results with a potential revision in ASP, eventually showing normalisation in GP margins after a mild GP margin squeeze of 2% in the 4QFY16 results on the back of higher raw material prices.

Source: Hong Leong Investment Bank Research - 23 May 2017