MARKET REVIEW

Asian stock markets extended its selling pressure, taking cues from the overnight negative Wall Street performance amid the increased US-Turkey fears as well as disappointing earnings from Tencent. However, most of the key indices managed to pare down losses after China announced it was planning a new round of trade discussions with the US; the Hang Seng Index and Shanghai Composite Index declined 0.82% and 0.63%, respectively, while the Nikkei 225 (-0.05%) ended flattish.

Meanwhile, the FBM KLCI (-0.49%) took a beating on the back of re-emergence of selling pressure on Tenaga and IHH amid ongoing concerns over Turkey crisis. Market breadth was negative with decliners led gainers by a ratio of 2-to-1, supported by 2.11bn shares traded, worth RM1.91bn. Nevertheless, export-oriented sector, especially the technology sector was under the limelight on the back of weaker ringgit tone.

With the US and China planned to have another round of trade talks later this month, it has calmed the market and US-Turkey issues have taken a back seat for the moment. The Dow jumped 1.58%, while S&P500 and Nasdaq gained 0.79% and 0.42%, respectively. The positive move was also contributed partly by stronger-than-expected results released by Walmart and Cisco Systems.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI snapped the two-day winning streak and continues to hover below the SMA200. The MACD Indicator is weakening as the MACD Line is below the Signal line. Meanwhile, both the RSI and Stochastic are trending below 50. The resistance will be pegged around 1,790, followed by the 1,800 level. Support will be located around 1,750-1,760.

Tracking the overnight Wall Street optimism over the upcoming trade talks, we see buying interest to spill over into Malaysia’s equities. Also, we believe the trading interest may stay within export-oriented stocks on the back of stronger USD vs ringgit.

TECHNICAL OUTLOOK: DOW JONES

The Dow traded positively after forming a hammer candle above the 25,000 level. The bullish candle has contributed towards a recovery in MACD Histogram. Also, the RSI and Stochastic oscillators have hooked upwards. We believe this could be a short term trend reversal that may retest 25,500, followed by the 26,000 level. Support will be anchored around 25,000.

We think the market volatility will continue to be driven by the negative Turkey crisis and positive trade talks between the US and China. Should there be any disappointments on the trade discussions later this month, the selling pressure may resume. Meanwhile, we opine that with the short term positive technical indicators, the Dow could trend slightly higher towards 26,000 level.

TECHNICAL TRACKER: MIKRO MSC

Home grown electrical distribution equipment player with growing international exposure. We believe the 29.8% YTD plunge in share prices is overdone and grossly priced in the 33% decline in 9MFY18 earnings, mainly due to temporary product mix/sales aberration, forex losses, higher promotional expenses and expiry of the pioneer status. We remain sanguine on MIKROMB’s long term prospects, driven by its product resilience and innovation, hands-on management, strong in-house R&D and expanding geographical footprints. Valuations are undemanding at 13.1x FY17 P/Ex (12.1x ex net cash of 2.4sen) vs. FBM ACE FY17 P/E of 19.1x. Potential downtrend channel breakout to spur prices to RM0.38-0.405 levels.

Source: Hong Leong Investment Bank Research - 17 Aug 2018