MARKET REVIEW

Asian stock markets were mostly positive after yuan strengthened against the USD after traders digested President Trump’s comment on the Fed’s rate hike pace. The Shanghai Composite Index and Hang Seng Index increased 2.04% and 0.76%, respectively.

On the local front, market sentiment turned negative after a 9-day winning streak as investors were locking in profits; the FBM KLCI declined 0.26%. Market breadth was negative with 481 decliners vs 411 gainers, while market traded volumes stood at 2.89bn (worth RM2.53bn).

With the escalation of trade tension following the comments by President Donald Trump that US is ready to put tariffs on every Chinese goods that is imported by US, Wall Street was beaten down on an intraday basis. However, bargain hunting activities emerged and cushioned the downside risk after Microsoft and Honeywell announced better-than-expected earnings. The Dow (-0.03%) and S&P500 (-0.09%) ended flattish for the session.

TECHNICAL OUTLOOK: KLCI

Despite the FBM KLCI ending lower on profit taking activities after the 9-day of winning streak, the MACD Line has crossed above zero. Meanwhile, the RSI and Stochastic oscillators are in the overbought position; indicating that the upside of the key index could be limited over the near term. The resistance will be envisaged around 1,760-1,780, while the support will be located around 1,710-1,720.

We believe the positive sentiment may take a back seat for the moment amid the escalating trade fears. Also, with the consensus expecting a softer August reporting season, traders may take a cautious view over the near term. Hence, we expect FBM KLCI to trend sideways between 1,740 and 1,770.

TECHNICAL OUTLOOK: DOW JONES

Despite recent bullish symmetrical triangle breakout, the Dow failed to advance further but retreated on profit taking, with technical oscillators starting to hook down. Hence, near term outlook has turned slightly negative with key retracement supports at 24,600-24,800 zones. Meanwhile, key resistances remain at 25,500-25,800.

Still, the Dow is hovering above the SMA200. However, the Stochastic oscillator is suggesting that the Dow is overbought and we may anticipate that the key index may trend sideways between the 24,500-25,500 levels this week.

TECHNICAL TRACKER: Three-A Resources

Recession proof business with a strong FY18-20 EPS CAGR of 14%; Potential symmetrical triangle breakout. Despite near term challenging outlook, we still like 3A for the robust sales of its resilient F&B ingredients, healthy balance sheet (with RM22m net cash), as well as proven track record that is supported by strong brand equity of its products both domestically and in export markets. Valuation is undemanding at 12.8x FY19E P/E (12.2x if ex-cash of RM22m or 4.5sen/share), a 21% discount below its peers, supported by a strong 14% FY18-20 EPS CAGR. More upside towards RM1.10-1.22, pending a downtrend line breakout soon.

Source: Hong Leong Investment Bank Research - 30 Jul 2018