Market Review

• The Asian stock markets trended on a positive note following the better-than-expected China Caixin manufacturing PMI which suggested a pick-up in manufacturing activities in July. The Shanghai Composite Index rose 0.59%, while Nikkei 225 and Hang Seng Index advanced 0.30% and 0.79% respectively.

• In tandem with the regional markets, the FBM KLCI managed to recover above 1,760 at 1,765.13 pts (+0.29%), but was unable to excite the broader market as selling activities picked up, contributing to a negative market breadth – 542 stocks declined and 297 stocks advanced, while 389 traded unchanged. Market volumes stood at 1.82bn (vs. 100-day average 2.8bn). Meanwhile, FBM ACE ended on a higher note as investors turned their interest into lower liners companies like SYSTECH, KRONO and MPAY.

• Another round of rally on Wall Street was noted, bringing the Dow near towards the psychological level of 22,000 as Republican refocuses on corporate tax reform after healthcare bill was unable to repeal Obamacare. White House envisions that the House vote and Senate vote will fall on October and November respectively.

Technical View

Gradual upward move may be seen towards 1,770

• The FBM KLCI managed to stay above 1,760 and the MACD Line is trending nearer to zero level. Meanwhile, the RSI and Stochastics indicator are hovering in the positive region. Resistance will be envisaged around 1,770-1,775, while support will be located around 1,760.

Market Outlook

• The on-going US reporting season continued to lift the markets higher as most of the companies have shown better-than-expected results, based on Thomson Reuters. However, we think that market could look for profit taking opportunities as S&P500 is trading at 18 times earnings estimates for the next 12 months (10-year average: 14 times).

• Meanwhile, sentiments on the local front could remain cautious without any fresh catalyst in the trading environment. Investors are likely to focus on heavyweights, which may lift the KLCI higher towards 1,770-1,775. Also, traders may look into ACE market stocks for short term trading opportunities.

• Closed positions: Yesterday, we took profit on ROHAS (6% gain after hitting R1) and squared off our positions on DNEX (lost 2.5% amid expiry) and SAMCHEM (lost 4% amid weakening technicals).

Source: Hong Leong Investment Bank Research - 2 Aug 2017