MARKET REVIEW

Asia’s stock markets ended on a positive tone with the resumption of trade discussions last week. Investors were anticipating some positive news flow may surface on the trade developments between the US and China; the Shanghai Composite Index rocketed 3.20%, while Hang Seng Index and Nikkei 225 added 0.96% and 0.82% respectively.

Meanwhile, stocks on the local bourse ended slightly positive with the FBM KLCI rising 0.14% to 1,643.64 pts. Market breadth was finally positive with gainers led losers by a ratio of 7-to-5. Market traded volumes stood at 2.47bn worth RM2.24bn. With the recovering sentiment, constructions stocks that are ECRL-related such as Econpile, Gabungan AQRS and HSS Engineers were traded higher.

Wall Street closed positively on Friday amid the restart of US-China trade talks; US officials commented China is willing to discuss further on a range of issues (including on forced technology transfer). The Dow and S&P500 rose 0.82% and 0.67%, respectively, while Nasdaq increased 0.78%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI extended the consolidation phase around the 1,638-1,650 levels. The MACD indicator suggests that the trend remain negative (MACD Line below zero), while the Histogram has recovered mildly. Meanwhile, the RSI and Stochastic are oversold. We believe with the recovering sentiment abroad, coupled with the oversold status in momentum indicators, the key index could rebound higher over the near term. Resistance will be located around 1,666-1,680, support will be pegged around 1,630.

With the slight optimism on trade developments, we opine that the positive buyer support may spill over towards stocks on the local front. Also, with the firmer crude oil prices, coupled with recovering sentiment on construction sector on the back of a potential revival of most of the BN-era projects after renegotiations (commented by Lim Guan Eng) moving forward, we expect oil and gas and construction stocks will be actively traded this week.

TECHNICAL OUTLOOK: DOW JONES

The Dow has rebounded last week and the MACD indicator trended higher for the week. Meanwhile, both the RSI and Stochastic oscillators have crossed above 50; indicating that the positive momentum is intact. With the stronger technicals as compared to previous week, we opine that the Dow may retest the resistance along 26,000-26,343, while the support will be anchored around 25,190 (SMA200).

On Wall Street, traders will be focusing on the trade developments between the US-China with the surfacing of positive comments from the US officials. Nevertheless, market participants will also monitor the status of the inverted yield curve as it is likely to be signalling a potential recession in the future. Hence, the Dow’s upside could be capped around 26,000-26,343.

TECHNICAL TRACKER: HARTALEGA

Playing catch-up against its peers. In anticipation of a weak 4QFY19 results in May and a slowdown in NGC expansion plans, HARTA’s market capitalisation plunged 14.9% or RM2.71bn to RM4.63 post its 3QFY19 results due to: 1) Excessive valuations; 2) Waning USD effect; 3) Normalising demand; 4) Swelling capacities and intensified competition coupled with 5) The delay in FDA approval for its new Anti-Microbial Gloves (AMG) to Dec-19 (vs Jun-19 previously). In our view, those risks are overblown as value has emerged with the negatives appearing to be priced in and valuations become more reasonable at 27x FY20 P/E, supported by the more superior ROE and net margins (vs. its peers). Technically, HARTA is poised for a downtrend line breakout to retest RM4.80-5.00 territory, after a brief consolidation.

Source: Hong Leong Investment Bank Research - 1 Apr 2019