MARKET REVIEW

Key regional markets ended mixed as optimism on the US-China trade progress waned following the G20 summit relief rally. Meanwhile, the Reserve Bank of Australia (RBA) announced it was cutting its cash rate by 25 basis points to a new all-time low of 1%, marking its second straight month of easing after it slashed rates in June. The Hang Seng Index and Nikkei 225 advanced 1.17% and 0.11%, respectively, while Shanghai Composite Index ended flat. Meanwhile, the FBM KLCI trended higher for second consecutive day after the G20 summit; the key index rose 0.44% to 1,691 pts. Market breadth was fairly neutral with 440 gainers against 450 losers, accompanied by 2.82bn shares traded for the session, valued at RM2.57bn. Construction stocks such as Gamuda, Hock Seng Lee and George Kent were traded actively higher for the day.

Wall Street traded higher on the back of the trade truce between the US and China, but gains were limited as soon as the US threatened another round of tariffs worth USD4bn on European goods. The Dow and S&P500 added 0.26% and 0.29%, respectively, while Nasdaq rose 0.22%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI extended its rebound over the past two trading days, and the key index has surged above SMA200. The MACD Line and Histogram have expanded positively over the session, but both the RSI and Stochastic oscillators are overbought. Hence, with the mixed technical readings, we expect the recent upward move may be capped along 1,700-1,730, while support is envisaged around 1,658-1,680.

Taking cues from the overnight Wall Street performance, we believe the KLCI may trend higher for the day. However, the concerns over the unresolved prolong trade war between the US and its trading partners could continue to put pressure on the upward momentum across the broader market, leading to some profit taking activities eventually. The FBM KLCI’s upside may be limited around 1,700.

TECHNICAL OUTLOOK: DOW JONES

The Dow rebounded yesterday, but the MACD Line trended flat over the last few sessions. In addition, both the momentum oscillators (RSI and Stochastic) are fairly overbought; suggesting that the uptrend could be limited for now. Resistance will be set around 26,952-27,000, while support is pegged around 26,500.

Market participants were turning fairly optimistic on the US-China trade truce, but the recent episode on potential escalation of tariffs on European goods are suggesting to the market that Trump’s trade war has no practical end in sight, and the optimism that has emerged in the G20 summit quickly dissipated. Hence, we opine that the Wall Street could trend within a range between 26,500-26,952.

TECHNICAL TRACKER: CLOSED POSITION

Took Profit on RHBBANK (+5% Return) on 2 July.

TECHNICAL TRACKER: GFM

Expect a solid FY19 following the earnings accretive acquisition of university asset concessionaire, KP Mukah. Driven by contribution from KP Mukah, new projects, as well as improved rates for contract renewals, GFM’s 1Q19 PBT surged 83% YoY and 225% QoQ to RM7.5m, respectively. Management is upbeat on earnings prospects moving forward, underpinned by growing IFM market in Malaysia, solid RM1.38bn orderbook and is targeting to secure the subsequent full-scale contract for the provision of FM services for luxurious BBCC project. GFM is currently trading at 9.7x P/E (18% discount to its peers and 58% below its 3Y average of 23.2x). Moreover, GFM is likely to attract more institutional investors once its application to transfer to the Main Market is successful. Technically, the stock is poised to breach 200D SMA resistance at RM0.47, before moving higher to RM0.505-0.565 zones.

Source: Hong Leong Investment Bank Research - 3 Jul 2019