MARKET REVIEW

Despite the fresh trade developments between the US and China, Asian stock markets closed mixed. The Nikkei 225 and Hang Seng Index gained 0.35% and 0.42%, respectively, while Shanghai Composite Index plunged 1.33% dragged by Fosun Pharmaceutical.

Investors on the local front shrugged off the concerns over Turkey crisis, and focused on the planned trade discussions between the US and China later this month. Sentiment turned positive with the KLCI rising 0.35%. Market breadth was also positive with 466 advancers vs 403 decliners. Still, market participants were looking for export-driven opportunities last Friday on the back of depreciation pressure on the ringgit.

Wall Street ended on a positive note as National Economic Council Director, Larry Kudlow confirmed on a previous statement related to US and China would hold a fresh round of trade discussions later on this month as well as President Trump and President Xi hope to discuss US-China trade in November. The Dow and S&P500 rose 0.43% and 0.33%, respectively, while Nasdaq added 0.13%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI has been trending sideways below the SMA200 and hovering within a narrow range (1,773-1,789) over the past four trading days. The MACD indicator is suggesting that the KLCI could further consolidate over the near term. Meanwhile, the RSI and Stochastic oscillators are mixed and we could anticipate that the KLCI’s upside to be capped near 1,800.

We believe the recent volatility could persist as the fresh trade developments could be offset by the news flow from the Turkey crisis and the decline in Turkish Lira. Hence, we opine that the market could cautiously over the near term and KLCI’s upside might be limited around 1,800-1,810.

TECHNICAL OUTLOOK: DOW JONES

The Dow extended its rebound after retesting the 25,000 level last week. With the MACD Indicator turning positive last week, coupled with the hooking up of momentum oscillators (RSI and Stochastic), we could expect the Dow to retest the 26,000 level. Support will be pegged around 25,000.

After the comments from Larry Kudlow confirmed on the ‘mid-level discussion’ between the US and China, we would expect firmer trading tone ahead as this could boost investors’ confidence at least for the near term. Upside of the Dow could be located around 25,500- 26,000.

TECHNICAL TRACKER: POH HUAT RESOURCES

Potential beneficiary of escalating US-China trade war and a good proxy to stronger greenback. We believe the 27% share price plunge from 52W high is overdone and grossly priced a consensus 28% decline in FY18 earnings, mainly due to higher raw materials, rising production costs and stronger ringgit. We remain positive on POHUAT’s long term prospects, driven by the resurgence of USD, sturdy furniture demand globally and potential positive spill over effect to more cost competitive manufacturers in ASEAN amid escalating US-China trade tensions. Valuations are undemanding at ex-cash FY19 P/E of 5.5x (25% lower than peers) and 1.11x P/B (21% discount to peers), supported by 4.6% DY (15% higher than industry). Potential LT downtrend reversal amid saucer bottom formation.

Source: Hong Leong Investment Bank Research - 20 Aug 2018