MARKET REVIEW

Asia’s stock markets ended mixed despite China’s exports rising to a 5-month high (while import declined for the fourth straight month). Also, investors were trading on a cautious tone on the back of the uncertain trade developments between the US and China as President Trump and President Xi has not secured a date for the trade summit. The Nikkei 225 and Hang Seng Index rose 0.73% and 0.24%, while Shanghai Composite Index fell 0.04%.

Meanwhile, market sentiment shifted from negative to positive prior to the ECRL announcement; the FBM KLCI rose 0.37% to 1,630.17 pts amid bargain hunting activities following the sharp fall on Thursday. Market breadth was however slightly negative with 411 decliners vs. 399 gainers. Market traded volumes stood at 3.26bn, worth RM2.08bn. After the ECRL announcement on Friday, most of the construction related counters were traded actively.

Wall Street gained momentum on Friday as most of the banking stocks (JP Morgan, Wells Fargo) released better-than-expected earnings, while Disney revealed a new streaming service and boosted the stock sentiment further. The Dow and S&P 500 added 1.03% and 0.66%, respectively, while Nasdaq gained 0.46%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI has rebounded on Friday and the MACD Histogram has recovered mildly last week. The RSI and Stochastic (oversold) oscillators are showing an uptick last week after threading in the oversold region. Hence, we believe that the technical rebound could extend this week, targeting 1,647-1,650, while the support will be pegged around 1,626, followed by 1,614.

We believe the negative sentiment could be overdone at this juncture and may warrant a technical rebound on the FBM KLCI. Meanwhile, with the green light given on ECRL, trading activities on the construction-related stocks are likely to increase over the near term. Besides, we see potential upside on building material (steel and cement related), at least for the near term on the back of this news flow.

TECHNICAL OUTLOOK: DOW JONES

The Dow formed a flag formation breakout above 26,250 and the MACD indicator has turned positive after the MACD Line turned flattish last week. The RSI and Stochastic (slightly overbought) oscillators are trending higher. Hence, the uptrend intact may extend towards the 26,500 and 26,951 zone. Meanwhile, support will be at 26,000, followed by 25,500.

With the positive start in the US corporate earnings season, we believe the sentiment may extend at least for the near term. However, market participants will be focusing on US-China trade development news in the near term. Should any negative surprise emerge from the trade front, it may limit the upside potential on Wall Street. The Dow’s resistance is located around 26,951.

TECHNICAL TRACKER: BINACOM

A cheaper proxy to telco support services industry. Binacom (listed in Jan 2018 and trading 16% below its IPO price of RM0.46) is a provider of support services for satellite, mobile and fibre optic telco network. We view Binacom as a potential beneficiary of outsourcing trends, spectrum reallocation exercise, implementation of the National Fibre Optic and Connectivity plan and changing technological trends (from 4G to 5G deployment in the long term). Outlook remains positive following the construction of the new teleport facility and the purchase of high-definition Digital Satellite News Gathering (DSNG) system to provide new services to customers. Valuation is undemanding at 10.5x trailing PE (44% below peers); Binacom is a cheaper proxy for investors seeking exposure to the telecommunications support sector. Technically, a decisive breakout above downtrend line near RM0.40 will spur prices higher to RM0.46-0.485 levels.

Source: Hong Leong Investment Bank Research - 15 Apr 2019