Market Review

• Following the speech from China’s President Xi Jinping at the Boao Economic Forum, where he pledged to significantly lower import tariffs for vehicles, ease restrictions on foreign investment in the motoring industry as well as import more goods in order to reduce trade imbalances, stock markets ended on a positive tone.

• Similarly, in wake of the positive tone from President Xi, coupled with the severely oversold Malaysia’s equities, shares on the local front were lifted strongly, resulting in a positive market breadth (955 advancers vs 221 decliners). The FBM KLCI added 0.61% to 1,860.98 pts, while FBM Small Cap and FBM ACE rocketed 4.32% and 6.80%, respectively.

• The relief rebound on Wall Street extended after President Xi promised to reduce tariffs managed to calm investors on an escalating trade war between US-China. This has lifted the sentiments of the stock markets and The Dow and S&P500 1.79% and 1.67%, respectively. Meanwhile, selected commodities such as Brent oil and aluminium gained nearly 4% each.

Technical View

Resumption of uptrend position above 1,860

• The FBM KLCI maintained its uptrend position after securing the 1,860 level. The MACD Indicator is recovering towards the zero level, while both the RSI and Stochastics oscillators are suggesting that the positive momentum is intact. We may expect further recovery of FBM KLCI towards resistance of 1,876, followed by 1,896 over the near to mid term. Meanwhile, support will be pegged around 1,840-1,850.

Market Outlook

• Dow outlook: In the US, the near term buying interest is likely to sustain amid the softer echo from both the US and China. Also, investors may be looking beyond the trade war into the April reporting season, the first results after the corporate tax bill passed in Dec last year. The rebound move on the Dow may revisit the 25,000 level.

• KLCI outlook: We anticipate that the positive performance on Wall Street would be able to spillover to the local front, extending yesterday’s gains on the small cap and lower liners. As expected, tech stocks will be focus following the steep selldown in the previous weeks.

• Trading Buy – DAYANG: Supported by a RM2.8bn orderbook and over RM6bn tenderbook, valuation is undemanding at 10.9x FY19 P/E (9% lower than 5-year average P/E of 12x). We expect Dayang to enjoy earnings upcycle in FY18-19 (after a sluggish FY17) with a robust 44% FY17-19 EBITDA CAGR premised on higher TMS services and HUC as well as EPCC services contracts amid improving operating climate . We are anticipating a potential downtrend line breakout above RM0.82.

Source: Hong Leong Investment Bank Research - 11 Apr 2018