Market Review

• Regional stock markets ended mostly in the negative zone amid the falling oil prices. Both the Nikkei 225 and Hang Seng Index declined, but the Shanghai Composite Index rose 0.52% after MSCI given a nod on the inclusion of China A-shares in the emerging index.

• Market sentiments on the local bourse were negative with the softer crude oil prices, dragging the Ringgit towards a weaker position for the day. The FBM KLCI ended below the 1,780 level at 1,775.57 pts (-0.29%) led by Tenaga and IHH. Market volumes dwindled another round towards 1.69bn shares compared to 1.81bn a day earlier, while the market breadth was negative (2 decliners for every 1 advancer). However, technology sub-indices bucked the trend by surging another 0.62%.

• Despite a larger drawdown of crude and gasoline inventories according to the EIA report, it failed to excite the crude oil prices to trend higher. Hence, it has weighed the sentiments on Wall Street with the selloffs within energy stocks; the Dow and S&P declined by 0.27% and 0.06% respectively, but Nasdaq managed to buck the trend led by biotechnology stocks.

Technical View

Key index retested lower band of the channel

• Despite the daily MACD Indicator suggesting that the momentum is weakening, the key index has traded towards the lower band of the channel and could be due for a rebound towards 1,785, while support will be set around 1,770.

Market Outlook

• The overseas market ended on a lower note, but both the Dow and S&P500 has retested the upward trendline of 21,410 and 2,432 respectively. The Dow could be due for a technical rebound towards the 21,500, while S&P500’s resistance will be located around 2,453.

• Meanwhile, on the local front, after the bear camp has dominated over the past three trading days, we expect buying interest to emerge amid bargain hunting activities but may be capped by concern over oil prices. Tech stocks may trend higher amid higher Nasdaq movement.

• Closed position. We squared off our position in JCY (2.3% loss) yesterday amid weakening technicals.

• Trading Buy – MAXIS. At RM5.59 (11.7% below our HLIB institutional TP of RM6.33), Maxis is trading at 20.4x FY18 P/E (about 15% below its 10-year average P/E of 24x), supported by a decent DY of 3-4% for FY17-18. We believe such valuations and steeply oversold positions coupled with the fixing of RM5.52 placement price (9.2% lower to the 5-day VWAP) have priced in most of the negatives, providing sufficient margin of safety to cushion further plunge in share prices.

Source: Hong Leong Investment Bank Research - 22 Jun 2017