MARKET REVIEW

Asian equities closed mostly higher as China markets took the lead, rising 1.48% after digesting US-China trade talk last week. Meanwhile, Hang Seng Index gained 0.23%, but the Nikkei 225 ended flattish. Throughout the Asian hours, the WTI crude oil topped the US$70 mark first time since 2014, while US dollar index gained momentum.

Meanwhile, on the local front, the FBM KLCI (1,828.20 pts, -0.74%) traded lower for the day as market participants were turning cautious ahead of the GE14, contributing towards a negative market breadth (750 decliners vs 187 advancers). Market volumes stood at 1.92bn, worth RM2.09bn. Meanwhile, stocks that bucked the trend were mainly FBMKLCI put warrants and selected oil and gas stocks (Hibiscus and Coastal Contracts and Yinson).

Wall Street extended another day of gains led by Apple Inc, which closed sixth day higher and firmer recovery in crude oil amid an anticipation of weaker production in Venezuela and expectations that the US will impose new sanctions against Iran. The Dow and Nasdaq surged 0.39% and 0.77%, respectively.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI continued to trade lower for the fourth consecutive days, violating below the upward channel (red) at 1,840 and retested the next support trendline at 1,820. With the MACD Line hovering below zero, we think the FBM KLCI could extend its pullback towards the SMA200 at 1,795. Resistance will be envisaged around 1,840-1,860.

At this juncture, we believe investors may refrain to expose further into stock markets ahead of the major event GE14, which is one of the biggest dampener towards the equities. Also, foreign net outflow stood at 273.6m (Monday), which may send cautious tone to the market participants, resulting in further pressure on FBM KLCI and broader market. Nevertheless, traders may lookout for opportunities within O&G sector amid stronger crude oil prices.

TECHNICAL OUTLOOK: DOW JONES

The Dow rebounded higher for another session after being supported near the SM200 level last week. The MACD Indicator has issued a “Buy” signal, while the RSI and Stochastics are suggesting the momentum is recovering. The Dow could revisit the resistance along 25, 000 after a mild consolidation. Support will be located around 23,500.

The near term downside volatility could have been cushioned out by the recent stronger-than expected earnings season. Meanwhile, the decision by Donald Trump on 12th of May towards the Iran nuclear deal may trigger some trading interest on crude oil prices. However, should there be any negative newsflows related to trade talks between the US and China, it may soften the trading tone moving forward.

Values resurface; Potential downtrend reversal. Unisem offers strong growth prospects (FY18-20 CAGR of 13%) at undemanding valuation of 10.6x (8.5x ex-cash) FY19 P/E (22% below its peers), supported by decent dividend yield of 3.6%-4.7% for FY18-19 and strong net cash of RM252m or RM0.34/share. Downside risk is limited, as sentiment is boosted by recent USD strength (vs RM), potential downtrend reversal from hammer candlestick pattern and company’s share buy-back exercise.

Source: Hong Leong Investment Bank Research - 8 May 2018