Market Review

• Despite the positive sentiment across Wall Street, coupled with the recovery in Brent crude oil prices (more than 1% in the Asian session), most of the Asian stock markets were still having heavy selling interest. The Nikkei 225 and Hang Seng Index trended lower by 2.3% and 0.2%, respectively, while SHCOMP gained 0.8%.

• Stocks on the local front traded on a lacklustre mode ahead of the Chinese New Year holiday. Traders were slightly cautious after the heightened volatility in the market. However, the FBM KLCI managed to recover mildly towards 1,830.17 pts (+0.6%). Market breadth was negative with decliners led advancers by a ratio of 10-to-9. Overall traded volumes were softer at 1.80bn (100-day moving average volumes of 2.98bn), worth RM2.27bn.

• Wall Street rebounded higher for the second consecutive day as volatility taken a back seat, coupled with the release of Budget and Infrastructure Plan from White House, which may spur US$1.5trillion of new infrastructure spending. The Dow extended higher by 1.5%, while S&P500 grew by 1.4%.

Technical View

KLCI may revisit resistances near 1,840-1,850

• Despite the KLCI traded higher towards 1,830, the MACD indicator stay negative, while the RSI and Stochastics oscillators were suggesting mixed signals. Hence, the upside will be capped around 1,840-1,850 levels, while the support will be pegged around 1,810-1,820.

Market Outlook

• We believe the recent recovery on Wall Street is only a short term technical rebound at this juncture as investors were scooping up oversold shares on solid fundamental companies after the heavy plunge last week. We think the Dow may revisit the resistance around 25,000 over the near term.

• Similarly, sentiments on the local front may stay positive, in tandem with the recovery on overseas markets and the FBM KLCI may challenge the 1,840 level.

• Trading Buy – FRONTKEN. Frontken is involved in diversified industries such as semiconductor (foundries), TFT-LCD, hard disk, manufacturing, oil and gas (O&G), power generation, renewable energy, marine etc in Malaysia and regional markets. With increased stakes in its Taiwan subsidiary, which is undergoing capacity expansion process, we may anticipate higher contributions from the semiconductor industry. Furthermore, Frontken may enjoy multiyear superior growth with expanding its footprint into China (likely by 2019). Uptrend channel intact with low downside risk due to undemanding valuation at 12.3x FY18 P/E (ex-cash 8.3x). Key resistances are RM0.435-0.50 while supports fall on RM0.37-0.395. Cut loss at RM0.365.

Source: Hong Leong Investment Bank Research - 13 Feb 2018