Market Review

• The rally on Wall Street catalyzed by Trump’s administration making progress on the corporate tax reform failed to excite the Asian stock markets as investors were looking for profit taking opportunities ahead of Jackson Hole meeting. The Nikkei 225 added 0.26%, while Shanghai Composite Index ended marginally lower by 0.08%. Hong Kong Exchange was closed as Typhoon Hato hit Hong Kong.

• Despite the strong gains on Wall Street, sentiments on Bursa Malaysia were subdued after the RHB-AMBANK deal was called off; RHBBANK rose 3.9%, while AMBANK fell 2.3%. The market volumes were firmer at 2.0bn for the day. However, market breadth turned negative with 454 decliners vs 415 gainers.

• Wall Street ended in the negative territory after President Trump commented on a potential government shutdown in order to fund the construction of the US-Mexico border wall. Also, new home sales which plunged 9.4% mom in July dampened the tone in the markets. The Dow and S&P500 went into the profit taking mode and declined 0.40% and 0.35% respectively.

Technical View

MACD Indicator giving a negative signal

• Despite the FBM KLCI trending sideways between 1,770- 1,780, the MACD Line has crossed below the Signal Line, indicating that the momentum is weakening. Also, both the RSI and Stochastics oscillators are threading lower following the softer closing on the key index.

Market Outlook

• With Trump's uncertain move on his economic agenda, we believe it will not bode well for the market environment. Hence, we opine that the upside of the stock markets will be limited around 22,000-22,200.

• Meanwhile, stocks on the local front may still trade on a sideways tone amid the on-going financial reporting season as investors remain cautious and deploying the wait-and-see strategy over the near term. The KLCI could hover between the 1,765-1,775 levels.

• Closed position: Yesterday, we squared off our position on HIAPTEK (1.3% gain) due to expiry.

• Trading Buy – EVERGRN. At RM0.785, the stock is trading at 9x FY18 P/E (about 18% below 5-year average P/E of 11x) and its P/B of 0.57x is trading at 26% below its 10-yr P/B of 0.77x and a massive 67% discount against its peer. Following the formation of spinning top and long-legged Doji during recent slump, share prices are likely to bottom up to refill the RM0.79-0.82 gap. A successful breakout above RM0.82 will drive prices further to retest the crucial RM0.85 downtrend line channel before heading towards LT objective at RM0.91. Key supports are RM0.74-0.76. Cut loss at RM0.735.

Source: Hong Leong Investment Bank Research - 24 Aug 2017