MARKET REVIEW

Despite trading off the intraday low in most of the regional markets, Asia’s stock markets still ended in the negative territories amid escalating trade tensions after Beijing confirmed it is halting US agricultural product purchases, retaliating against President Trump’s tariffs threat. Meanwhile, PBOC set the midpoint for the Chinese yuan stronger than the CNY7/USD, stabilising sentiment for the near term. The Shanghai Composite Index and Hang Seng Index declined 1.56% and 0.57%, respectively, while Nikkei fell 0.65%.

Meanwhile, stocks on the local front started the session on a negative note, but sentiment managed to recover towards the end of the day; the KLCI closed marginally higher by 0.09% to 1,611.70 pts after hitting an intraday low of 1,588.98 pts. Market breadth, however was still negative with decliners leading advancers by a ratio of 5-to-4, accompanied by 3.13bn, worth RM2.62bn. Nevertheless, selected export counters such as Hartalega, Kossan and Top Glove traded actively higher amid weakening ringgit.

Following the sharp decline on Wall Street on Monday, bargain hunting activities emerged and Wall Street reversed higher as investors digested the move by China’s central bank, setting yuan’s official reference point stronger than the CNY7/USD level, easing tensions about the nation using the yuan as a weapon in the trade war. The Dow and S&P500 1.21% and 1.30%, respectively, while Nasdaq added 1.39%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI ended marginally positive after recouping most of the intraday losses from the lowest point in 4 months. The MACD indicator is still negative, while both the RSI and Stochastic are oversold. Hence, we believe the KLCI could be due for a technical rebound, targeting 1,621-1,626 (recent downward gap zone). Support will be at 1,600, followed by 1,580.

On the local front, after extreme selloffs below the 1,600 and intraday recovery on FBM KLCI, we believe the market tone will stabilise in the positive territory for the session, tracking the overnight performances on Wall Street. In addition, traders may focus on export-driven sectors such as gloves and furniture counters as well as gold-related stocks amid rising gold prices, but O&G may experience some profit taking activities after Brent oil prices declined below USD60.

TECHNICAL OUTLOOK: DOW JONES

The Dow has retested the SMA200 near the 25,500 level and rebounded strongly yesterday amid bargain hunting activities and it is still on a long term uptrend more. The MACD indicator has rebounded mildly and both the RSI and Stochastic oscillators are recovering from its oversold position. Hence, the Dow could rebound towards 26,263 in the near term, while support will be set around 25,500.

In the US, it will be news-headline driven markets amid current unresolved trade tensions as any move from either the US and China will affect the market directions sharply in the near term. Meanwhile, National Economic Council Director Larry Kudlow commented that Trump was still open to a trade deal between US and China, and would lead to flexibility on tariffs. The trade talks are set to resume in September as Chinese officials will be heading to Washington for the discussions.

TECHNICAL TRACKER: HSSEB

Values emerge after recent selldown. Ahead of 2Q19 results next week, HSSEB’s prices slid 21.8% from one month high of RM1.19 to RM0.93 yesterday, tracking external markets headwinds and concerns over slower progress billings due to project delays. We like HSSEB’s exposure to a wide array of domestic infrastructure segments, riding on the potential mega projects revival in Malaysia and the ASEAN as major energising force for growth that are impervious to burgeoning trade war tensions. We believe HSSEB will be the first to benefit given requirements to appoint engineering consultants to design and conduct feasibility studies on infrastructure projects before they are implemented. Valuation is not expensive at 18.4x FY20 P/E (31% below its 2Y average 27x P/E), supported by RM558m order book (sustainable for minimum 2 years). Technically, the stock is ripe for an oversold rebound towards RM0.98-1.12 after a brief sideways consolidation.

Source: Hong Leong Investment Bank Research - 7 Aug 2019