Market Review

• Asian stock markets dipped into the negative region after the tariffs announcement by President Trump. Most of the steel producers and automakers registered steep losses. The Nikkei 225 dived 2.50% as yen strengthened against US dollar, while Hang Seng Index and Shanghai Composite Index dropped 1.48% and 0.99%, respectively.

• Stocks on Bursa Malaysia were affected by the soft regional performance. Market breadth was negative with decliners ahead of advancers by a ratio of 2-to-1. Steel and metal related stocks were the focus last week after Trump's comments on the import tariffs. Overall traded volumes stood at 2.55bn, worth RM2.41bn.

• Wall Street started the session in the red territory following the statements from Donald Trump on the import tariffs of steel and aluminium products. However, the sentiment managed to recover and the Dow recouped part of the losses and closed at 24,538.06 pts (-0.29%), while S&P500 and Nasdaq advanced higher by 0.51% and 1.08% respectively.

Technical View

Sideways consolidation phase may persist

• The FBM KLCI has retreated from the intra-week high of 1,872 and closed below 1,860 and could be viewed as a healthy retracement after the steep rebound from 1,795 in February. The MACD indicator turned flattish above the zero level. The RSI and Stochastics oscillators have turned weaker over the week. Hence, we think the upside might be limited around 1,870 and the support will be set along 1,840.

Market Outlook

• We think the impact from the recent events such as the Fed Powell's testimony in the Congress and President Trump's steel tariffs episode could put further pressure on the global markets as investors may switch from stocks to bonds. The Dow may be capped along the 25,000 psychological level over the near term.

• Similarly, stocks on the local front are likely to extend the sideways consolidation phase on the back of uncertain actions from Donald Trump that may turn into a trade war. Moreover, investors may continue their profit taking activities on steel and aluminium producers. The KLCI is likely to range between 1,850-1,865.

• Trading Buy – UMWOG. UMWOG (about 59% owned by PNB group) is principally engaged in the upstream sector of the O&G industry (contributed 97% to FY17 turnover) in Malaysia and Southeast Asia. Tracking stabilisation of crude oil prices, we believe the worst is over for UMWOG post restructuring exercise with net gearing is expected to reduce to 0.3x in FY18 (from 1.4x in FY16). We believe the stock is grossly oversold and ripe for a downtrend resistance breakout soon.

Source: Hong Leong Investment Bank Research - 5 Mar 2018