MARKET REVIEW

Asian stock markets traded mixed as investors were focusing on trade tensions that emerged during the G7 summit as well as the Trump-Kim summit (12-13 June). The Nikkei and Hang Seng Index rose 0.48% and 0.34%, respectively, but Shanghai Composite Index fell 0.48%.

Throughout the trading session, the FBM KLCI reversed earlier gains into the negative territory on a last minute selling pressure; the key index slipped 0.14% to 1,775.80 pts. Market breadth was negative with 488 losers vs. 404 gainers, accompanied by 2.62bn shares (worth RM2.40bn) traded for the day. Sectors that bucked the trend include industrial products, trading/services and plantation.

Wall Street continued to trade higher despite extended worries on trade issues after Donald Trump refused to endorse the joint G7 statement over the weekend in G7 summit. The Dow gained marginally by 0.02%, while S&P500 and Nasdaq increased 0.11% and 0.19%, respectively.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI trended sideways over the past two trading days after the key index revisited the 1,800 level last week. The MACD Indicator has turned flattish below zero, while both the RSI and Stochastics oscillators are hovering below 50. With technical indicators suggesting that the momentum is still weak, we think the key index may further consolidate within the range of 1,750-1,800 over the near term.

For our local front, stocks are likely to stay sideways as investors are digesting and waiting for fresh leads from Pakatan Harapan on their reform plans that would grow Malaysia’s economy over the mid to long term. Nevertheless, in this uncertain market environment, traders may look into stocks within the consumer and REITs sector for defensive exposure.

TECHNICAL OUTLOOK: DOW JONES

The Dow continues to trade above the SMA200 level, suggesting that the uptrend is intact. Meanwhile, the MACD indicator has expanded positively above zero. However, both the RSI and Stochastics oscillators are overbought. Hence, we opine that the Dow could still revisit the 25,500 after a short retracement, with the immediate support located around 25,000.

In the US, trading activities remained cautious as investors will be monitoring two major events, namely the Trump-Kim summit and FOMC meeting that will be concluding on 13th of June. Should there be any negative surprise throughout the US-North Korea summit, it may dampen the market tone over the week.

TECHNICAL TRACKER: TALIWORKS CORPORATION

A good proxy for an eventual settlement of Selangor water saga; Pending a descending triangle breakout. Negatives largely priced after a 28% slump in share prices YTD, mainly attributable to the Selangor water crisis, post GE14 selloff coupled with concern of potential cuts in dividend payment and tolls restructuring. Nevertheless, further downside risks are cushioned by an undemanding 11.7x FY19 P/E (35% below 10Y average of 18x and supported by a 22% EPS CAGR from FY18-20) coupled with a huge trade receivables of ~RM638m or 52sen/share (66% of its market cap).

Source: Hong Leong Investment Bank Research - 12 Jun 2018