MARKET REVIEW

Asia’s stock markets turned negative following the renewed trade tensions after President Donald Trump declared to increase tariffs on USD200bn Chinese products from 10% to 25% by Friday. President Trump further threatened to impose 25% tariffs on the additional USD325bn of Chinese goods in the near future. The Shanghai Composite Index and Hang Seng Index plummeted 5.58% and 2.90%, respectively.

Following the negative development on trade front, the FBM KLCI ended lower by 0.27% to 1,632.80 pts. Market breadth was extremely bearish with nearly 6 decliners for every gainer on the broader market, while overall traded volume stood at 2.79bn, worth RM1.70bn. Most of the Hang Seng put warrants traded actively higher throughout the session.

Wall Street declined sharply at the start of the session as traders were digesting the move by President Donald Trump, slapping more tariffs on Chinese goods. Nevertheless, stocks made a comeback after news stating that the Chinese delegation would resume the trade talks in US this week, accompanied by Chinese Vice Premier Liu. The Dow and S&P500 fell 0.25% and 0.45%, respectively.

TECHNICAL OUTLOOK: KLCI

Although the FBM KLCI traded towards an intra-day low of 1,623.61 pts, buying interest managed to lift the key index, narrowing the losses to around 4.5 pts to close at 1,632.8 pts; forming another hammer candle. The MACD Line is still hovering below the zero level, while both the RSI and Stochastic oscillators are turning downwards. Hence, with the negative technicals, we opine that the FBM KLCI’s upside would be limited around 1,658-1,666. Support will be pegged around 1,610-1,630.

We believe renewed concerns on the trade front would persist and dampen the stocks markets moving forward despite the earlier trade discussions between the US-China were seen as positive in the previous weeks. Also, with Brent crude oil prices sliding briefly below the USD70 level (but staged a rebound towards the closing), we may expect weaker trading activities on O&G counters. Nevertheless, the strong rebound on Wall Street could spillover towards KLCI, but the FBM KLCI’s upside will be capped along 1,658-1,666.

TECHNICAL OUTLOOK: DOW JONES

The Dow recovered strongly (close near highest of the candle) after hitting the intraday low of 26,039 level. The MACD indicator is hovering above zero, while both the RSI and Stochastic oscillators are trending above 50 (albeit hooking downwards). Resistance will be located around 26,500-26,952, while support will be pegged along 26,000, followed by SMA200.

Despite the Dow managed to recover most of the losses in the recent session, we believe statements from President Trump regarding the imposition of higher tariffs has damaged the overall market sentiment. Hence, should there be any negative progress in the upcoming trade discussion in the US is likely to further dampen the stock markets. The Dow’s resistance is located around 26,500-26,952.

TECHNICAL TRACKER: Closed Positions

Yesterday, we had squared off our technical trackers positions on ECONBHD (4% return), FITTERS (2.1% loss) and CYPARK (2.3% loss).

TECHNICAL TRACKER: ORION

Transforming from a maintenance management system business to a fintech solution specialist. If executed well, Orion is expected to turnaround in FY6/19 following the synergistic acquisition of ASAP for RM73m in Oct 2017 to become the largest computerised maintenance management systems provider in Malaysia, as well as diversifying into fintech solution targetting non-bank financial institutions (NBFIs) for the promising end-to-end microloan applications. In Oct 2018, it had made a major breakthrough with ANGKASA to provide a fintech end-to-end loan application and approval platform called MyAzZahra for its credit co operatives to offer microloans to government staff. Currently, ORION trades at 17.2x FY6/19E P/E and 1.1x P/B, which are 20% and 68% lower against its peers.

Source: Hong Leong Investment Bank Research - 7 May 2019