MARKET REVIEW

Most of the key regional benchmark indices trended on a higher note after the positive developments on the US-China trade talks and US dollar were traded firmer against most of the other currencies. The Nikkei 225 added 0.31%, while Shanghai Composite Index and Hang Seng Index increased 0.60% and 0.64%, respectively.

On the local bourse, the FBM KLCI traded on a mixed note as the key index gave up earlier session gains to end at 1,853.58 pts (-0.05%) amid selling interest amongst selected banking heavyweights such as CIMB. Market volume was softer at 2.78bn, worth RM3.05bn vs. 2.92bn shares traded, worth RM3.16bn on Friday. Market breadth was slightly positive with 493 advancers vs. 476 decliners. Selected sectors that bucked the trend include consumer (+1.1%), properties (+0.3%) and technology (+1.3%).

Soon after the positive developments in the trade discussion as Mnuchin, US treasury secretary commented that they are putting the trade war on hold and agreed not to impose tariffs on China at this juncture, the Wall Street gapped up; the Dow and S&P500 rallied 1.21% and 0.74%, respectively.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI continues to stay sideways over the past five trading days. The MACD Line is still hovering below zero, while the RSI and Stochastics oscillators are hovering slightly above 50. As the signals are mixed, we anticipate that the consolidation phase may extend over the near term within the range of 1,840-1,876.

On the local bourse, we may anticipate some positive spillover trading activities, tracking the performance on Wall Street. However, upside could be limited and trading volatility may return once the detail of the potential review of the construction mega projects and toll concessions that was mentioned by the new administration is being revealed.

TECHNICAL OUTLOOK: DOW JONES

The Dow has formed a flag formation breakout, hitting our previous target of 25,000. The MACD Indicator is hovering above the zero level. However, the Stochastics oscillator is overbought. We may expect mild pullback over the near term. The support will be located around 24,400, while the resistance will be envisaged around 25,400-25,500.

With the trade war putting on hold, investors could turn to a more risk-on approach for the near term. However, traders could put focus on the next major events such as the Trump North Korea summit that will be held on 12th June, as well as the Fed’s FOMC meeting on 12- 13 June.

Positive merger with AFB; Poised for a triangle breakout. We remain cautiously optimistic of a steady 11% FY17-19 EPS CAGR following the merger with AFB in 1Q18. Valuation is undemanding at 1x P/B versus 10Y historical average of 1.26x. Recent base building above RM1.16 (200d SMA) is positive for a potential triangle breakout.

Source: Hong Leong Investment Bank Research - 22 May 2018