Market Review

• Asian markets resumed selling in the morning as the MSCI ASIA Pac (MXAP) index fell as much as 1.2 pts to 170.8. However, the index recouped all the losses and rose 0.86 pts to 172.83 as news emerged that the US agreed to exempt South Korea from steel tariffs and positive comments by the U.S. Treasury Secretary Steve Mnuchin that he believed Washington could reach agreement with China in a bid to starve off a looming trade turmoil between the world economic superpowers.

• Tracking mild recovery in regional markets, KLCI pared its losses to 5.3 pts after slipping as much as 12.7 pts. However, overall market sentiment remained cautious as trading volume decreased to 1.98bn shares worth RM1.79bn against last Friday’s 2.09bn shares worth RM2.15bn. Market breadth was negative with 334 gainers as compared to 589 losers.

• The Dow rallied 669 pts or 2.8%, recouping nearly half of the slump last week as trade war fears eased on reports the United States and China are willing to renegotiate tariffs and trade imbalances. Overall sentiment was calmed as Chinese Premier Li Keqiang repeated pledges to maintain trade negotiations and ease access to American businesses after comments by the U.S. Treasury Secretary Steve Mnuchin that he believed Washington could reach agreement with China on some issues.

Technical View

Uptrend from 1796 remains intact

• KLCI is currently building a platform near 1848, the uptrend line support from 1796 (6 Feb). As KLCI managed to reclaim above the multiple key SMAs supports, theirs is a silver lining that the index may retest 1877 (22 Mar high). A decisive breakdown below 1848 will induce the next wave of selling towards 1828- 1838 levels. Conversely, a push above 1877 would bode well for the index to retest 1880 and all-time high of 1896 (8 July).

Market Outlook

• Dow outlook: Despite overnight 2.8% rally, Dow’s near term outlook remains uncertain as the bounce could be technically driven from steeply oversold levels rather than a material change in the fundamentals as the dual threats to economic growth of a trade war and higher borrowing costs are not dissipating. Stiff resistances are near 24.6-25.0k while supports are seen near 23.0k-23.3k.

• KLCI outlook: Tracking volatilities in the external markets, the underlying market tone should stay cautious, reflected by the FBMSCAP (-11% YTD) and FBMACE (-15% YTD) performances. Nevertheless, ahead of the upcoming GE14, severe downside risks on the KLCI is likely to be limited (+3.3% YTD), cushioned by index-linked supports on heavyweights by local institutions.

• Trading idea: COMFORT is a niche player in the natural and synthetic specialty examination gloves segment. Valuation is undemanding at consensus 14.5x FY19 PE (14.2x ex-cash), which is about 40% lower against its peers, supported by FY17- 20 EPS CAGR of 20%. It is in the verge of potential downtrend line breakout with upside targets at RM1.10-1.22 while supports fall on RM0.99-1.00. Cut loss at RM0.985.

Source: Hong Leong Investment Bank Research - 27 March 2018