MARKET REVIEW

Asian stock markets traded mixed led by another round of selling pressure on Shanghai Composite Index (-1.26%) following the recent retaliation action by China, whereby China announced to impose tariffs from 5% to 25% on USD60bn of US goods. Meanwhile, Nikkei 225 trades flattish and Hang Seng Index gained 0.52%.

On the local front, stocks traded on a lacklustre tone amid the escalating tension between the US and China after the latest tariffs threat. The FBMKLCI slipped marginally by 0.02% to 1,779.75 pts. Market breadth was negative with decliners led advancers by a ratio of 5-to-3, accompanied by slightly higher volumes of 2.12bn, worth RM1.70bn. Nevertheless, we noticed some technology related companies in the ACE market (Ucrest, JHM and Revenue) traded actively higher.

On Wall Street, investors looked beyond the newest tariffs threat from China, and focused on the ongoing corporate earnings, which has helped to lift the overall sentiment. Also Facebook rebounded on the back of bargain hunting activities, which contributed to fresh all-time-high on Nasdaq (7,859.68 pts, +0.61%).

TECHNICAL OUTLOOK: KLCI

The FBM KLCI is hovering below the SMA200 and the MACD indicator is flattish over the past few sessions. The RSI and Stochastic oscillators remained overbought at this juncture. Hence, we think the upside is capped near the 1,790-1,800 levels. Support will be anchored around 1,750-1,760

On the local front, market is likely to stay cautious and trend sideways ahead of the uncertain August reporting month. However, the near term catalysts that traders could be focusing will be the oil prices and water-related stocks after the recent conclusion of Selangor’s water industry restructuring exercise.

TECHNICAL OUTLOOK: DOW JONES

The Dow could be forming a flag formation breakout after revisiting the 25,500 level. The MACD Indicator is still flattish, but both the momentum oscillators are showing recovery signs. Should there be a committed breakout above 25,500, next resistance will be envisaged around 26,000. Support will be pegged around 25,000.

We think the better-than-expected reporting season in the US should be able to stabilise the market sentiment, at least for the near term. However, traders might turn their focus to the trade developments as a hearing on the levies is scheduled on 20-23 Aug. Also, oil prices will be closely watched as the first round of US sanctions against Iran goes into effect.

TECHNICAL OUTLOOK: CLOSED POSITION

We had squared off our position in LAYHONG (4.6% loss) yesterday amid weakening technicals.

TECHNICAL OUTLOOK: BCMALL

Riding the commercial laundry equipment trend and buoyant medical devices industries in Malaysia. Despite a competitive commercial laundry equipment business, we remain sanguine on BCMALL, spearheaded by the medical devices segment and newly acquired 51% stake in healthcare company Cypress Medic S/B in Feb. Valuation is attractive at 9x (7.6x ex cash) FY19 P/E (35% below historical 14x P/E and 43% below ACE market P/E of 16x), supported by a robust FY17-19 EPS CAGR of 42% and net cash of RM14m or 3.3sen/share; Bullish downtrend channel breakout to spur prices towards RM0.21-0.245 levels.

Source: Hong Leong Investment Bank Research - 7 Aug 2018