Market Review

• Mixed trading tone was noted within Asian stock markets prior to the conclusion of the European Central Bank’s meeting, in order to understand the direction of the future monetary policies for the European region. The Nikkei 225 and Shanghai Composite Index traded higher by 0.15% and 0.33% respectively, while Hang Seng Index dropped 0.36%.

• Soon after the opening bell, the FBM KLCI ended in the negative territory led by selling pressure on IHH and CIMB. However, properties and plantations sub-indices traded higher, while market breadth stayed positive for the session with 420 advancers and 383 decliners.

• The on-going reporting season continued to lift the markets higher on Wall Street as earnings from Ford and Twitter managed to beat analysts’ expectations. Nike and DowDupont shares were traded higher, boosting the Dow and S&P500 0.31% and 0.13% respectively. On the Eurozone region, ECB will halve its bond buying to €30bn per month till September 2018.

Technical View

KLCI hovering within the downward channel

• Over the past five weeks, the FBM KLCI has fallen from the recent peak of 1,793, forming the downward channel. However, the MACD Histogram has turned green for the second consecutive days and the RSI and Stochastics oscillators are oversold. We anticipate that the key index may perform a technical rebound towards 1,740-1,750, while the support will be pegged around 1,730.

Market Outlook

• In the US, the focus would now shift to corporate tax reform details that may be unveiling soon as this should enhance the earnings in the future. Nevertheless, we think the Dow may experience a short term pullback amid overbought signals and the upside is likely to be capped around 23,500.

• Still, for the local bourse, stocks are likely to stay cautious ahead of Budget 2018. However, should there be any positive announcements in Budget 2018, we may expect short term recovery of key index towards 1,740-1,750. Also, O&G stocks could stay focus amid stronger Brent prices above US$59.

• Trading Buy – PESONA. Pesona (listed in Oct 2012 via the RTO of Mithril) offers investors exposure to a pure construction play with an incoming stream of recurring earnings from SEP (concessionaire of UNIMAP hostel). Its orderbook stands at a healthy RM1.7bn, translating to a 4.5x cover on FY16 construction revenue, supported by robust earnings growth (FY16-19 earnings CAGR of 35%). PESONA’s share prices are likely to stage a breakout above RM0.56 (50-d SMA) in the near term, targeting RM0.59 and RM0.635, cut loss will be set around RM0.49.

Source: Hong Leong Investment Bank Research - 27 Oct 2017