MARKET REVIEW

Asia’s stock markets ended on a positive note following the conclusion of the FOMC meeting, where the central bank kept the interest rates unchanged and commented that it would "act as appropriate" to sustain the economy. The Shanghai Composite Index and Hang Seng Index advanced 2.38% and 1.23%, respectively, while Nikkei 225 added 0.60%.

Tracking the regional gains following the Fed’s outcome and the interest rate outlook, the KLCI added 0.53% to 1,675.43 pts. Market breadth was positive with 468 gainers as compared to 353 decliners, accompanied by market traded volumes of 2.27bn, valued at RM2.28bn. In addition, most of the O&G stocks ended higher as Brent oil prices traded higher throughout the session amid the growing tension in the Middle East after US officials stated that an Iranian missile had shot down one of the US drones.

Wall Street rallied strongly led by tech and energy (on the back of higher crude oil prices amid geopolitical tension) stocks as market participants cheered positively with an anticipation that the Fed may cut interest rates as early as next month. The Dow and S&P500 rose 0.94% and 0.95%, respectively while Nasdaq gained 0.80%.

TECHNICAL OUTLOOK: KLCI

After surpassing the 1,658 level, the KLCI trended higher and the MACD indicator has expanded positively over the past few sessions. However, both the RSI and Stochastic oscillators are overbought. The resistance is pegged around 1,680-1,700, while the support will be located around 1,658, followed by 1,630.

On the local front, we opine that the market may be getting a shot in the arm taking cues from overnight Wall Street performance and the KLCI could charge higher above the immediate resistance of 1,680 to retest the 1,700 psychological level. Meanwhile, traders may monitor trading activities amongst the O&G stocks as Brent oil prices ended 4.25% higher at USD64.45.

TECHNICAL OUTLOOK: DOW JONES

Following the consolidation breakout two days ago, the Dow extended its uptrend, forming the YTD high at 26,753.78 pts. The MACD indicator continues with the positive expansion, but both the RSI and Stochastic oscillators are overbought. The next resistance will be envisaged around 26,952, while support is anchored around 26,500.

Markets generally are focusing on interest rate expectations and if investors are expecting a rate cut as soon as next month, it may continue to lift the sentiment on Wall Street, at least over the near term. Hence, the Dow may retest the all-time-high near 26,952 zone. Nevertheless, another major event that traders will be watching out is the G20 summit, should any negative development resurfaces ahead of the G20 summit, and it may dampen the market sentiment, limiting the upside potential eventually.

TECHNICAL TRACKER: PECCA

A record year in the making. Pecca’s share prices rallied 47% YTD following a 65% surge in 9MFY19 earnings to RM13.8m, mainly attributed to higher sales volume and improved operational scale. HLIB maintains a BUY rating with a RM1.40 TP (+29.6% upside) based on 13x P/E on FY20 EPS, given its strong operational cash flow of RM17-25m per annum (FY19- 21) with current net cash position of 51sen per share. Valuation is undemanding a 10.5x FY20E (35% lower than average 16.2x P/E since listed), supported attractive DY of 5.6-7.4% for FY19-21. Technically, the rounding bottom pattern signals potential long term downtrend reversal pattern, with upside targets at RM1.13-1.28 levels.

Source: Hong Leong Investment Bank Research - 21 Jun 2019