Market Review

• Despite the strong breakthrough on the US markets last week where the Dow stayed above 24,000, Asian stock markets trended mixed as Nikkei 225 and Shanghai Composite Index slipped 0.49% and 0.24% respectively, but Hang Seng Index managed to gain 0.22% amid the rebound in Tencent and selected insurance stocks.

• On the local front, Bursa Malaysia succumbed to profit taking activities in tandem with the mixed regional indices across Asia. Market breadth was negative with 659 losers vs 289 gainers. Market traded volumes stood below 2.0bn mark at 1.80bn worth RM2.57bn. Nevertheless, consumer sector gained 0.2% as investors scooped up certain shares within the defensive space.

• Following the approval of tax bill by the US senators over the week, positive buying interest pushed the Dow towards an intraday high of 24,532.70 pts but closed only slightly higher at 24,290.05 pts (+0.24%), led by selloffs among technology giants as investors rotated their investment ideas into energy stocks.

Technical View

Still within the downtrend channel with an oversold signal

• The FBM KLCI continues to thread near the support of 1,710 and the MACD Line is still hovering below the zero level. However, the Stochastics oscillator is suggesting that the FBM KLCI is oversold. The downside could be limited around 1,700-1,710, while the key index may be due for a technical rebound near the 1,720-1,730 levels.

Market Outlook

• Despite the bullish move on the Dow, sentiments on Wall Street may be volatile with the rebalancing of the funds into sectors that may benefit from the tax overhaul program. The Dow's support will be located around 23,800-24,000.

• At the moment, we opine that market may stablise near the 1,700-1,710 levels as investors reassess companies’ 3Q17 earnings while digesting the impact of the rebalancing of the key index after the inclusion of Press Metal and Nestle into FBM KLCI. Also, we opine that the FBM KLCI could be due for a technical rebound on the back of the window dressing period.

• Trading Buy – HUAAN. HUAAN through its wholly-owned subsidiary, Linyi Yehua Coking Co., Ltd. is involved in the production and sale of metallurgical coke (~79% of its revenue) and its by-products (~21% of its revenue) namely coal gas, tar, ammonia sulphate, crude benzene, coal slime and middling. The current implied P/E is at 3.5x based on an annualized EPS for FY17 at 6.55 sen (9M17: EPS of 4.9 sen). Pegged at a conservative PE of 5x, we could anticipate further upside for HUAAN within a higher targeted trading range of around RM0.325 (7% lower than 6-year high of RM0.35 on 31 Oct).

Source: Hong Leong Investment Bank Research - 5 Dec 2017