MARKET REVIEW

Asian equities ended mostly lower as there is some overhang in the trade war developments after Donald Trump’s commented that he was not satisfied with the outcome of the recent trade talks with China. Also, investors were traded cautiously prior to the release of Fed’s minutes. The Nikkei 225 declined 1.18%, while Shanghai Composite Index and Hang Seng Index 1.41% and 1.82%, respectively.

Shares on the local front traded on a lacklustre tone, tracking the negative performance on Wall Street, as well as renewed concerns on our national debt status; the FBM KLCI declined 2.21% to end at 1,804.25 pts. Market breadth was negative with 763 decliners, 237 advancers, while 364 traded unchanged. Overall market volumes were below 3.0bn mark at 2.69bn (worth RM3.34bn). Only technology sector managed to buck the trend with an increase of 0.09% on the sub-index; Inari and MPI rose 5.0 sen and 12.0 sen, respectively.

Wall Street started lower after the opening bell as renewed worries on the trade talks, but managed to recoup earlier losses and ended in the green territory after Fed’s minutes indicated that they will let inflation run above 2% for a period of time before they would increase the interest rates. The Dow and S&P500 inched up 0.21% and 0.32%, respectively.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI violated below the support of 1,820 (immediate trendline support) and revisited near the 1,800 psychological level. The MACD Indicator is turning negatively over the past two trading days, while the RSI and Stochastics oscillators are hooking lower as well. As the indicators are slightly negative bias, we believe the downside risk may persist over the near term. The support will be anchored around 1,800, followed by 1,760. Should there be any rebound the upside will be envisaged around 1,830-1,840.

We believe there could be some relief rebound on the FBM KLCI, tracking the slight gains on Wall Street. Nevertheless, upside could be limited as traders may still be focusing on the national debt issues and anticipate the next action plan by Pakatan Harapan to reduce the debt status. Moreover, the 1MDB newsflows on the media as well as the anticipated reviewing of construction mega projects and toll concessions may dampen the overall trading sentiment.

TECHNICAL OUTLOOK: DOW JONES

The Dow has covered the recent gap and turned higher, as the MACD Indicator is still hovering above zero, we maintain the uptrend status on the Dow. The Stochastics, however is overbought. We opine that the Dow may poise for a breakout above 25,000 after a short consolidation. Next resistance will be at 25,500, while the support will be pegged around 24,500.

In the US, we think the uptrend could sustain over the near term. However, traders may turn cautious should there be any negative surprises from the trade talks. Also, next major events that traders will be monitoring will be the FOMC meeting (12-13 June) and the US-North Korea summit (12 June).

TECHNICAL TRACKER: TELEKOM MALAYSIA

Undemanding P/E against peers; Potential relief rebound. We see TM’s selldown (35% YTD and 20% since the eve of GE14) as overdone, pricing in substantially the uncertainty of possible changes in the telco sector’s overall policy direction under the new PH. Values emerge as current 18.7x FY19 P/E is trading at a 14% discount against peers, supported by a strong 14% EPS FY18-20 CAGR (after a 15% drop in FY18) and a decent FY18-20 yield of 4.7%.

Source: Hong Leong Investment Bank Research - 24 May 2018