MARKET REVIEW

Asia’s markets were broadly positive as the US seeks to restart trade talks with China, with the senior US officials led by Treasury Secretary Steven Mnuchin had sent an invitation to Chinese officials requesting for a "ministerial-level delegation" to attend the trade talks. Nevertheless, semiconductor stocks in Asia took a hit following the slump in the US after Goldman Sachs warned of worsening memory chip demand.

Tracking higher regional markets, KLCI jumped 7.4 pts after fluctuated within a range of 15.5 pts between an intra-day high of 1793 and a low of 1777.5. Trading volume increased 6.6% to 2.38bn worth RM2.58bn, supported by positive market breadth of 478 gainers as compared to 405 losers.

The Dow rallied 147 pts to 26146 to record its 3rd consecutive gains amid optimism that the overtures from the US on new talks would defuse trade jitters. Sentiment was also boosted by a rebound in Apple shares and a slower-than-expected growth in the Aug CPI data (which tempered fears of rapidly rising inflation and Fed’s monetary tightening expectations).

TECHNICAL OUTLOOK: KLCI

Given the hammer candlestick formation yesterday and recovery in Dow overnight, KLCI could gain further grounds towards 1796-1800 levels. However, the recent breakdown below the support-turned-resistance trend line (near 1810) suggests that the bears are in the driving seat for the immediate term. Hence, unless KLCI can reclaim above 1810 successfully, it is likely to drift sideways with key supports at 1771 (lower Bollinger band) zones.

In wake of another commendable performance from Wall Street overnight amid optimism in a fresh US-China trade talk and a resumption in foreign buying yesterday (net buy RM175m shares) after disposing RM1.03bn in the last five sessions, KLCI could climb further towards 1795-1800 levels today. However, any rebound will be capped due to an extended holidays ahead (Bursa will be closed on 17 Sep for Malaysia Day), as investors will continue to adopt a ‘risk-off’ mode amid external headwinds.

TECHNICAL OUTLOOK: DOW JONES

Despite recent turbulence, the Dow managed to build its base above the uptrend channel from 24000, supported by positive readings in most indicators. Unless immediate support near mid Bollinger band at 25800 is violated, the Dow is still on track to test upper band resistance near 26500 and all-time high of 26600 in the long term. A breakdown below 25800 will trigger more retracements towards 25500-25600 territory.

Despite overall positive optimism from a new round of US-China trade negotiations, trading sentiment could remain edgy ahead of the upcoming FOMC meeting on 26 Sep and the prolong worries about contagion and spillover impacts to emerging markets from the US dollar appreciation and the impact of higher US interest rates coupled with ongoing trade disputes between the US and its trading partners. Hence, we anticipate that Wall Street may trend sideways over the near term.

TECHNICAL TRCKER: KPS

We believe the 23% correction from 52-week high has grossly priced in the earnings vacuum post SPLASH sale, which contributed the lion’s share of KPS profits. Nevertheless, this will be mitigated by the continuous implementation of the Business Transformation Plan to optimise the performance of its investee companies, which has already shown some improvement in 2Q18 results. Downside risk is cushioned by undemanding valuation at 0.6x P/B (on par with 10Y historical average) and potential special dividend (ranging fromRM0.22-0.42) arising from the SPLASH sale, which will transform KPS into RM312m net cash from RM453 net debt in 2Q18.

Source: Hong Leong Investment Bank Research - 14 Sept 2018