MARKET REVIEW

Despite overnight positive Wall Street performance, Asian key benchmark indices traded significantly lower amid the ongoing US-Turkey tension. Also, most of the tech and energy sector dragged the regional sentiment, resulting in declining key indices throughout Asia; the Nikkei fell 0.68%, while Shanghai Composite Index and Hang Seng Index dived 2.06% and 1.55%, respectively.

On the local bourse, the FBM KLCI (+0.12%, 1,785.94 pts) bucked the regional trend and ended in the positive territory led by a rebound in Tenaga and IHH. Market breadth however was negative with 461 decliners and 431 gainers, accompanied by market traded volumes of 2.40bn (worth RM2.03bn). Investors were also focusing on export-driven sector amid weaker ringgit outlook.

Stocks markets in the US ended negatively amid lingering fears on Turkey’s crisis and spill over selling pressure were noted within emerging markets and currencies as well as commodities (copper) on the back of stronger USD. The Dow and S&P500 dropped 0.54% and 0.76%, respectively, while Nasdaq skidded 1.23%.

TECHNICAL OUTLOOK: KLCI

Although the FBM KLCI rebounded consecutively for two days, it is still hovering below SMA200 and the MACD indicator has issued a “sell” signal. Meanwhile, both the RSI and Stochastic are trending lower. KLCI’s resistance will be envisaged around 1,800-1,810 and support will be anchored around 1,750-1,760.

Taking cues from Wall Street and worries on emerging markets, we anticipate resumption of selling interest amongst stocks on the local front, limiting upside potential of the KLCI. Nevertheless, we opine should there be weakened in export-driven stocks, it could be an opportunity to accumulate on the back of weaker ringgit outlook.

TECHNICAL OUTLOOK: DOW JONES

The Dow has retracement back near the 25,000 psychological level, forming a hammer candle, suggesting a potential relief rebound to be seen over the near term. However, the MACD Indicator is negative, while the RSI and Stochastic oscillators are on a weakening path. Hence, we think the upside potential could be limited around 25,500-26,000. Support will be pegged around 25,000, followed by 24,500.

On Wall Street, sentiment likely to stay cautious amid the heightened fears on US-Turkey situation. Furthermore, if the trade disputes worsen between US and its trading partners, it may dampen the tone on stock markets, capping the gains on Wall Street.

TECHNICAL TRACKER: CLOSED POSITION

We took profit on our Technical Tracker stock pick, BCMALL (+15.4% return) after hitting our R2 upside target yesterday.

TECHNICAL TRACKER: KPJ HEALTHCARE

Robust outlook and sustained momentum; Uptrend intact. As 30% of KPJ’s cost is drugs, it could benefit from the stronger 1HFY18 ringgit average of RM3.94/USD (1HFY17: RM4.39/USD), which may reflect in the upcoming quarterly results. Also, KPJ may benefit under the tax holiday period as KPJ no longer absorbing cost related to services that were not exempted under the GST-regime. Besides, we think there may be switching of trade flows from IHH to KPJ given the heightened volatility in Turkish lira, which may affect IHH’s earnings.

Source: Hong Leong Investment Bank Research - 16 Aug 2018