Market review

• Mixed trading tone was noticed on Asian equities, despite the fresh records on Wall Street amid the tech giants rally. Hang Seng Index and Shanghai Composite Index declined 0.36% and 0.77% respectively, while Japan Nikkei 225 ended flattish.

• Malaysia's stock market ended slightly higher post Budget 2018, which focused on generating higher income for the nation and the rakyat. Construction, property and e-commerce related trended positively for the day. Market breadth turned positive with a ratio of 5-to-4 with an overall traded volumes of 2.88bn. Meanwhile, the technology sector was positive with the automation incentives, coupled with the bullish tone on the overnight Nasdaq performance.

• Wall Street took a breather after the Republican leaders and President Trump may opt for a phase-in structure of the corporate tax-rate reform that would gradually reduce the corporate tax to 20% in 2022. Also, the Dow and S&P 500 were dragged by Merck shares amid a disappointment in its key cancer medicine.

Technical view

Poised to break the downward trendline

• The KLCI continued to retest the downward trend line near the 1,750 level and could be pending for a MACD crossover signal. We expect the technical rebound phase to extend towards the 1,755-1,760 levels. Meanwhile, support will be anchored near 1,730-1,740.

Market outlook

• As investors have priced in the idea of a full corporate tax cut, any disappointment of the tax cut rate will be a downside towards the market sentiments. Also, the other news that may dictate the direction of the stock market could be the news on the candidate of the Fed-chair.

• Meanwhile, with the mild pullback on US equities, stocks on the local front could turn into profit taking mode over the near term. Nevertheless, construction, technology and O&G stocks may still trade actively on the back of a friendly Budget 2018 and the firmer Brent crude oil prices.

• Closed position: We took profit on KGB (8.5% gain) at RM0.70 (R2) on 30 Oct.

• Trading Buy – MALTON. Malton Berhad is involved in property development and construction. Malton’s FY17 revenue rose by 38% yoy, while PBT grew 57% yoy on the back of higher recognition from its Bukit Jalil City projects. Malton is trading at P/B ratio of 0.75x vs. the peers’ average of 1.0x. We opine that Malton could be a laggard in its property space. Also, since Tan Sri Desmond Lim became the major shareholder of WCT, business rationalization between Malton and Pavilion REIT has been the talk of the town. Hence, investors may look for M&A news to trade on Malton, given the strong asset and landbank portfolio.

Source: Hong Leong Investment Bank Research - 31 Oct 2017