Market Review

• Asian stock markets ended on a mixed note after Bank of Japan kept its monetary policy unchanged. The Nikkei 225 and Hang Seng Index added 0.56% and 0.24% respectively, but Shanghai Composite Index fell 0.31%.

• Sentiments on the local front were still subdued following the tech selloffs and weaker Brent crude oil prices; the FBM KLCI traded marginally higher at 1,791.31 pts (+0.07%) after challenging the intra-day high of 1,796.75 pts. Market volumes stood at 2.00bn shares, while market breath was negative with decliners ahead of advancers by 525-to-359.

• Wall Street trended sideways after Amazon-Whole Foods US$13.7bn deal weighed on the retail and grocery companies like Target and Wal-Mart Stores. However, the Dow managed to end at all-time-high of 21,384.28 pts (+0.11%), marking the 4th consecutive weeks of positive closing, but Nasdaq closed in the negative region for the second straight week.

Technical View

Weekly stochastics oscillator overbought, shooting star candle on daily chart

• As the FBM KLCI traded within the resistance zone of 1,790-1,800, both daily and weekly stochastics are suggesting that the key index is overbought and KLCI’s upside could be limited for the time being. Meanwhile, support will be located around 1,780 and 1,760.

Market Outlook

• With the Fed increased the interest rates for the second time for this year, we expect the US dollar to gain momentum over the near term, which may contribute to higher trading interest among banking or financial heavyweights and the Dow may trend higher towards the next resistance of 21,500. Also, energy shares could be due for a technical rebound amid the stabilizing Brent crude oil price.

• However, on the local front, we expect investors’ mood to stay lackluster as most of the stocks within the tech sector were under pressure in US. Nevertheless, trading interest may still be positive under the selected metal and steel-related stocks on the back of laggards play.

• Trading Buy - UMCCA. We like UMCCA due to its young age profile (46% of its total planted landbank is aged <8 years), which in turn indicates decent FFB growth in years to come. Meanwhile, the construction of 2 new palm oil mills will enhance UMB’s overall profitability. Among its peers with similar size, UMB’s valuation is one of the lowest (from EV/ha angle), supported by strong FFB growth prospects and its plan to diversify into other food crops over the longer term (to cushion the price volatility of palm products).

Source: Hong Leong Investment Bank Research - 19 Jun 2017