MARKET REVIEW

Despite the better-than-expected earnings from Bank of America and Goldman Sachs, which supported further rebound on overnight Wall Street, Asia’s stock markets ended on softer as China’s growth outlook remained as one of the biggest concerns amongst market participants. The Nikkei 225 fell 0.20%, while Hang Seng Index and Shanghai Composite Index slipped 0.54% and 0.42%, respectively.

Meanwhile, the FBM KLCI bucked the regional trend and traded higher by 0.59% to 1,682.97 pts led by Genting-related heavyweights. Market traded volumes stood at 2.40bn, worth RM2.04bn, while market breadth was positive with 477 gainers vs. 331 losers. Also, we noticed most of the gloves stocks rebounded strongly on the back of weaker ringgit.

Wall Street gained momentum on the back of slight optimism on trade development between the US and China, where US Treasury Secretary Steven Mnuchin could be lifting partial of the tariffs imposed on Chinese imports during trade discussions scheduled for 30-Jan. However, buying momentum slowed down and retraced from the intraday high soon after a Treasury spokesman commented that Mnuchin had not made any of the above recommendation.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI has started to show signs of potential sideway consolidation breakout after forming a short term flag formation breakout at 1,680 level. The MACD Histogram has turned higher, while the MACD Line is approaching zero (from negative territory). However, the RSI and Stochastic oscillators are still mixed, hovering around the 50 level. Nevertheless, should the FBM KLCI surges above 1,687, next resistance will be at 1,700. On the flip side, support will be located around 1,665, followed by 1,650.

Despite the weaker sentiment amongst the regional markets, we believe positive sentiment on overnight Wall Street will be spilling over to stocks on the local bourse; lifting the FBM KLCI eventually towards 1,700. Traders may look into opportunities within export-related and O&G sectors amid weaker ringgit tone and firmer Brent oil prices above USD60, respectively.

TECHNICAL OUTLOOK: DOW JONES

The Dow trended higher above the 24,000 psychological, extending the recent V-shape rebound over the past 3 weeks. Also, the MACD Line has turned positive, while the MACD Histogram continues to climb further. However, the Stochastic oscillator is overbought, while RSI is approaching the overbought zone. Hence, with the overbought signals from the oscillators, we expect Dow’s upside to be capped around 24,965 (SMA200) level. Meanwhile, support will be envisaged around 23,543.

We believe the ongoing focus will be highly linked to trade-related news after a volatile session yesterday on Wall Street and market participants will be deploying a more cautious stance ahead of the scheduled 30-Jan trade discussions between China and US. In the meantime, ongoing corporate earnings will also be one of the market drivers over the near term. Based on technical analysis, the Dow could trend higher towards the 24,965 (SMA200).

TECHNICAL TRACKER: TOP GLOVE

Negatives mostly priced in. Topglove’s market capitalisation witnessed a RM2.59bn or 17.6% crash to RM4.73 (17 Jan) since announcing its 1QFY19 results (17 Dec) amid concerns over lofty valuations, waning USD boost, demand-supply imbalance, pricing competition and overcapacity in a myriad of costs, as well as the negative prospects for Aspion as the irregularities discovered/ impending legal intervention. In our view, we opine that those risks are overblown and could have been largely priced in after the recent slump, as valuation is undemanding at 21.5x FY20 P/E (22.1%/2.7% below 2Y/5Y average of 27.6x/22.1x), supported by the structural positive long-term prospects.

Source: Hong Leong Investment Bank Research - 18 Jan 2019