MARKET REVIEW

Asian key regional indices closed on a mixed note despite the US-China trade talks were having some positive developments over the weekend. The Nikkei 225 was down 0.18%, while Hang Seng Index gained 0.60% and Shanghai Composite Index ended flat.

Stocks on the local bourse were mostly lower with the continuation of profit taking activities; the FBM KLCI fell 0.46% to 1,845.03pts led by selected heavyweights such as Petronas Chemical and Telekom Malaysia. Market breadth was negative with losers outpaced gainers by a ratio of 2-to-1. Market traded volumes were lower at 2.36bn (vs. 2.78bn on Tuesday). However, construction and technology sectors noted some recovery play – the latter gained momentum on the back of weaker ringgit outlook.

Wall Street ended on a lower note as extended concerns on outcome of the recent trade talks with Donald Trump commented that he was not satisfied with the trade talks between the US and China and there was no deal yet on ZTE Corp. The Dow and S&P500 fell 0.72% and 0.31%, respectively.

TECHNICAL OUTLOOK: KLCI

Again, the FBM KLCI has violated the lower band of the upward channel. The MACD Indicator is below zero and the Histogram is weakening. Both the RSI and Stochastics oscillators are hooking lower. We believe the key index may extend its consolidation phase with a downward bias view over the near term. The support will be anchored around 1,830-1,840, while the resistance will be pegged along 1,876.

Market sentiment on the local bourse may stay soft affected by newsflows on 1MDB in the media as well as renewed concerns of our fiscal position after national debt has breached RM1trillion. Nevertheless, traders may look out for trading opportunities within the consumer and technology sectors on the back of zerorisation of the GST and weaker ringgit outlook, respectively.

TECHNICAL OUTLOOK: DOW JONES

After forming the flag formation breakout, the Dow pulled back below the psychological level of 25,000. However, the MACD Line is still hovering above zero – suggesting that the uptrend is intact. Meanwhile, the RSI and Stochastics oscillators are indicating that the Dow is overbought. Short term upside could be limited around 25,500, support will be located around 24,500.

In the US, market weakness may persist with the lingering uncertainties on the trade war issues, coupled with Trump’s surprise comments. Also, investors will be focusing on the FOMC meeting that will be held next month (12-13 June). Hence, we believe the Dow could be consolidating within 24,500-25,500.

TECHNICAL TRACKER: CLOSED POSITION

We had squared off our position in DESTINI (7.7% loss) yesterday amid weakening technicals .

TECHNICAL TRACKER: PECCA HOLDINGS

Overdone selldown; Auto stats remain encouraging. Pecca’s top 5 clients has shown monthly production units and monthly TIV sales growing steadily in 1Q18, which may benefit Pecca in the upcoming results. Also, Pecca is trading at 8.5x FY19 P/E (49% lower than average 16.6x P/E since listed), supported by net cash of 50 sen per share (ex-cash P/E of 3.6x). We think the recent selling pressure was overdone as investors perceived Pecca as BN-linked, anticipating a technical rebound towards RM0.92-1.00. Support at RM0.75-0.78, with a cut loss set at RM0.74.

Source: Hong Leong Investment Bank Research - 23 May 2018