Market Review

• Key regional indices ended on a softer tone following the repercussions of the dismissal of Trump’s business advisory councils. Also, the market jittery was escalated on a terror attack in Barcelona. The Nikkei 225 and Hang Seng Index plunged 1.18% and 1.08% respectively, while Shanghai Index closed flattish on Friday.

• Meanwhile, stocks on the local bourse were struggling at the start of the session, but managed to recoup earlier losses after Malaysia posted a strong 2Q GDP of 5.8%. The FBM KLCI was marginally lower on Friday, but advanced 0.5% on the weekly chart. Also, construction and technology stocks were turning fairly positive.

• US equities ended mostly lower as investors focused on political turmoil in the Washington amid softer confidence towards Trump's ability to push through certain economic agenda. The Dow has extended its pullback formation after the sharp selloffs on Thursday, which can be seen as a potential correction phase after the strong rally since Trump was elected as US president in November 2016.

Technical View

KLCI heading towards 1,780

• The FBM KLCI rebounded last week from the low of 1,766 level, forming a green bar on the weekly MACD Histogram. Also, the key index is hovering above daily SMA50, with the recovering RSI above 50. The upside resistance will be envisaged around 1,800, while support will be anchored around 1,760.

Market Outlook

• With the lingering Trump's issues, we think that the sentiments may stay cautious and the pullback phase on the Dow could extend towards 21,000. Also, the investors are likely to focus on the Fed's balance sheet unwinding discussion in the upcoming FOMC meeting in September.

• Despite the weak performance on the weekly Wall Street, we expect the local market sentiments to stay cautiously positive on the back of an upbeat 2Q GDP data. The KLCI could trend higher towards 1,780. Also, technology sub-index is likely to stage a rebound to the 38 level.

• Closed position: We closed our position on Alcom (4.9% loss) on 18 Aug at RM1.73 (S2) amid weakening technicals.

• Trading Buy – DNEX. DNEX was primarily an ICT provider, but the group diversified into the energy sector as its 2nd core business in 2016. Ex-cash of 3.6 sen, DNEX is currently trading at 9.6x FY18 P/E (vs 10-year historical average 20x), supported by 18.7% earnings CAGR (Source: Bloomberg consensus). Following the formation of bullish engulfing candle in the daily, we expect DNEX to advance further to retest immediate resistance at RM0.50 in the short term.

Source: Hong Leong Investment Bank Research - 21 Aug 2017