MARKET REVIEW

Asia’s stock markets traded mixed as the latest round of US and China tariffs went into effect over the weekend, while a private survey on China’s manufacturing sector indicated that factory activity unexpectedly grew in August (Caixin/ Markit manufacturing PMI stood at 50.4 vs. consensus of 49.8). The Nikkei 225 and Hang Seng Index fell 0.41% and 0.38%, respectively, while Shanghai Composite Index advanced 1.31%.

Local bourse was closed on Monday, while KLCI ended positively at 1,612.14 pts (+1.06%) last Friday after foreign funds turned buying for the first time since 18 trading days ago. The market breadth was positive with advancers led decliners by a ratio of 5-to-3, accompanied by 2.22bn shares traded, valued at RM2.01bn. We also observed selected O&G stocks such as YINSON, ARMADA, PCHEM were traded higher for the session.

Wall Street was closed for public holiday (Labour Day) on Monday. On the European front, although new set of tariffs was being imposed on US and China’s goods over the weekend, European stocks ended higher on the back of an uptick of PMI in August to 47.0 (albeit in the contraction region) vs. a reading of 46.5 in July. FTSE100 increased 1.04%, while DAX and CAC gained 0.12% and 0.23%, respectively.

TECHNICAL OUTLOOK: KLCI

Last week, the FBM KLCI surged above the 1,609 resistance and ended higher for the week with a decent gap-up formation on a Friday and the MACD indicator is improving in the negative region. Also, both the RSI and Stochastic oscillators have turned higher last Friday. Hence, with the positive technical readings we expect the KLCI will be trading on positive bias mode. Next resistance is set around 1,620, followed by 1,640, while support will be located around 1,600, followed by 1,580.

Despite another round of tariffs was implemented over the weekend, buying interest were noticed on most of the global stock markets and we believe it may spill over towards stocks on the local bourse, lifting the KLCI eventually in the near term. Next resistance will be set along 1,620-1,640. Traders may take the opportunity to lookout for bottoming out stocks for accumulation phase as the KLCI has formed a firm base around 1,580-1,600.

TECHNICAL OUTLOOK: DOW JONES

The Dow revisited the 26,400 level last Friday, while the MACD Line has been improving over the previous few sessions (albeit hovering below zero). For the momentum oscillators, both the RSI and Stochastic trended higher for the session; indicating that the momentum is picking up and the Dow may surpass the 26,400 resistance, targeting 26,800. Meanwhile, support is set around 26,000.

On Wall Street, with the positive trading tone across the globe, we expect buying interest to flow back into equities for the near term. However, with the new tariffs being imposed over the weekend, coupled with the prolong protest in Hong Kong as well as Brexit uncertainties; we believe the Wall Street’s upside could be limited around 26,800.

TECHNICAL TRACKER: OKA

A good start in FY20. As OKA is one of the largest local ready-mixed and precast concrete manufacturers and its products are widely used in the infrastructure, sewerage, construction and highways, sentiment on the stock could further improved in anticipation of the revival of mega infrastructure projects and government’s commitment in building more affordable homes. Valuations are cheap at 11.7x (53% below peers) and 0.83x BVPS (43% below peers), underpinned by attractive 6.2% DY (based on average 3.7sen in the last 3 years) and 1Q20 net cash/share of RM0.192 (Ex-cash P/E is only 7.9x). Technically, the stock is poised for a potential downtrend reversal towards RM0.63-0.74 levels in the mid to long term following the formation of Dragon Fly Doji and Hammer candlesticks.

Source: Hong Leong Investment Bank Research - 3 Sept 2019