MARKET REVIEW

Asian stock markets were generally mixed after BOJ’s decision on monetary policy, where it outlined a more flexible policy framework for long term yield target. The Nikkei 225 inched marginally higher by 0.04%, while Hang Seng Index declined 0.62%.

Meanwhile, on our local bourse, sentiment turned bullish after Khazanah’s new board was formed led by Tun Mahathir, coupled with the comment on MRT3 by Transport minister, Anthony Loke; the FBM KLCI was lifted 0.79% higher in the second half of the trading session lifted by selected heavyweights such as RHB Bank and MISC. However, market breadth was still slightly negative (479 decliners vs 438 gainers). Market traded volumes stood at 2.71bn, worth RM3.05bn.

Wall Street ended on a positive note as US and China is seeking to resume trade discussions in order to avert a full blown trade war. Meanwhile, the ongoing stronger-than-expected reporting season has been lifting the stock markets. The Dow and S&P500 rose 0.45% and 0.49%, respectively. Nasdaq rose 0.55%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI experienced a sideways consolidation breakout above the 1,770 level. The MACD Line is hovering above zero. However, both the RSI and Stochastic oscillators are overbought; indicating that the KLCI’s upside could be limited. Resistance will be envisaged around 1,790-1,800, while the support will be anchored around 1,740-1,750.

We noticed buying interest emerged yesterday after some positive news flows related to the construction sector. Also, foreigners have turned net buyers yesterday with an inflow of RM343.5m, this may further boost the confidence on broader market, lifting the KLCI higher. However, momentum oscillators are suggesting the FBM KLCI is overbought and upside could be limited around 1,790-1,800.

TECHNICAL OUTLOOK: DOW JONES

The Dow resumed its upward trend, retesting the 25,500 level and could be forming a flag pattern. The MACD Line is hovering above zero, but most of the momentum oscillators (RSI and Stochastic) are pointing towards a weaker position. We anticipate that the Dow could trend sideways before the flag breakout. Support will be pegged around 25,000, followed by 24,500. Meanwhile, resistance will be located around 25,500 and 26,000

In the US, should any positive news flow emerge from the trade discussion between the US and China, we think the buying interest may extend over the near term. Also, the better-than expected reporting reason should be able to cushion any downside move on the Dow; the trading range will be located within 24,500-25,500.

TECHNICAL TRACKER: HUP SENG INDUSTRIES

Resilient earnings with strong balance sheet and high dividend yield; Pending a triangle breakout. Despite challenging operating environment, we remain sanguine on HUPSENG’s prospects (HLIB TP RM1.38, +27.8% upside), due to the minimal impact from an increase in minimum wage; widening of margins from cheaper realised palm oil price this year; improving consumer sentiment, continuous products portfolio innovation, broadening distributor networks (local and overseas) coupled with business optimisation and operations efficiencies. Valuation is attractive at 15.7x FY19 P/E (9.7% below peers and 19% below 10Y average), supported by a steady FY17-20 EPS CAGR of 9%, strong RM71m net cash and attractive FY19-20 DY of 5.7-6.0%.

Source: Hong Leong Investment Bank Research - 1 Aug 2018