MARKET REVIEW

Asian equities ended on a mixed note last Friday after ECB indicated plans on winding down its quantitative easing program and investors were expecting the US to unveil a revised list of products from China that it will impose tariffs on. The Nikkei 225 rose 0.70%, while Shanghai Composite Index and Hang Seng Index fell 0.70% and 0.43%, respectively.

Meanwhile, the FBM KLCI traded marginally lower at 1,761.78 pts (-0.10%) on a half-session trading day prior to the long weekend break for Hari Raya. Also, market breadth was mildly negative with 361 advancers vs 372 decliners, which accompanied by softer volumes of 1.62bn shares, worth RM3.02bn. Nevertheless, gloves/rubbers stocks were traded actively higher; Supermax and Karex increased 4.9% and 16.8%, respectively.

Wall Street ended lower after Trump administration imposed 25% tariffs on up to USD50bn in China goods, resulting in further fear and uncertainties on stock markets as China retaliates with imposing tariffs on US products. The Dow fell 0.34%, while the S&P500 and Nasdaq declined 0.10% and 0.19%, respectively.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI has dropped for the past 5 consecutive trading days and formed a flag formation. The MACD Line, however is hovering above the Signal Line, but both the momentum oscillators (RSI and Stochastics) are slightly below 50. As the technicals are mixed, the key index may trend sideways over the near term. Should there be a breakout above 1,770, next resistance will be located around 1,790-1,800. The support will be pegged around 1,750.

With the resurfacing of trade war concerns between the US and China, we think the trading sentiment could turn slightly negative throughout the regional bourses, affecting the FBM KLCI’s performance, eventually. Nevertheless, we believe the downside risk on the broader market could be limited as most of the stocks were recovering from their oversold region.

TECHNICAL OUTLOOK: DOW JONES

The Dow pulled back from the recent high near the 25,500 level, but managed to sustain above SMA200 level. The MACD Indicator is hovering above zero. The RSI and Stochastics oscillators, however have reversed its positive move last week. Hence, we opine that the Dow may extend its consolidation phase with the support located around 25,000, followed by 24,500. On the flip side, should the Dow breaches above 25,200, it may retest 25,500.

In the US, we think the threat of the trade war may extend pressure on the stock markets as Trump administration could be looking at an additional USD100bn in import tariffs on China goods. Hence, the upside on the Dow may be capped over the near term.

TECHNICAL TRACKER: JOHORE TIN

Strong earnings visibility and undemanding valuations; Positive downtrend line breakout. Negatives largely priced after a 30% slump in share prices from YTD high of RM1.42 to end at RM1.00 last Friday. Further downside risks are cushioned by an undemanding 10.3x FY19 P/E (53% below its peers and supported by an 8% EPS CAGR from FY17-20) coupled with a generous DY of 4% (peers: 2.1%)

Source: Hong Leong Investment Bank Research - 18 Jun 2018