MARKET REVIEW

Key regional benchmark indices ended mixed as traders were still cautious going into the final week before the scheduled tariffs of the additional 15% on USD156bn Chinese goods. Meanwhile, China’s November Consumer Price Index increased 4.5% YoY, as food prices jumped 19.1% amid the country's woes following an outbreak of African swine fever. The Nikkei 225 and Hang Seng Index slipped 0.09% and 0.22%, respectively while Shanghai Composite Index added 0.10%.

Meanwhile, FBM KLCI slipped marginally by 0.06% to 1,561.79 pts led by banking heavyweights. Market breadth was still negative with 443 decliners vs. 365 gainers, accompanied by 2.66bn (worth RM1.51bn) shares traded for the day. Nevertheless, selected construction (GAMUDA, GKENT) and building material stocks were traded actively higher for the session.

Wall Street closed mostly lower as sentiment was dragged by the uncertain phase one trade deal status, where several news reported were having mixed views on the trade agreement. Also, market participants were trading cautiously ahead of the upcoming scheduled tariffs on 15th Dec. the Dow and S&P500 lost 0.10% and 0.11%, respectively.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI declined for the second consecutive day. However, the MACD indicator has turned flat while the MACD Histogram is gradually recovering. Meanwhile, both the RSI and Stochastic are still hovering below 50. Resistance is located around 1,580, followed by 1,600. Support is set around 1,550.

Despite the tepid performance from Wall Street overnight, coupled with mixed technical readings on FBM KLCI, we believe the downside risk could be limited as we opine the window dressing activities may emerge and support the KLCI at least for the near term. Hence, KLCI’s trading range will be located around 1,550-1,580. In addition, traders could monitor several sectors such as construction, building materials and plastic-related stocks for trading opportunities as volumes have picked up significantly.

TECHNICAL OUTLOOK: DOW JONES

The Dow has been threading near the immediate resistance of 28,000 level over the past three trading days and it has formed a two-day losing streak. The MACD Line has turned flattish; suggesting that the momentum is neutral. However, both the RSI and Stochastic oscillators are hovering above 50. With the mixed technical readings, we expect the Dow to remain in the sideways phase in the near term. Trading range will be envisaged around 27,400-28,200.

In the US, market participants will be holding back and staying sidelines until further clarity on the phase one trade deal that is widely anticipated. However, as we are heading nearer towards the scheduled tariffs on 15th of Dec, it may attract profit taking activities. The Dow’s upside could be limited for now and resistance is set along 28,200, while support is anchored around 27,400.

TECHNICAL TRACKER: PECCA

Widening valuations and attractive yields. We remain positive on PECCA’s mid to long term outlook from sustainable domestic sales (driven by Perodua) and improving export markets (especially from China). Auto-related M&A exercise and European Aviation Safety Agency (EASA) licensing (to penetrate into the lucrative aircraft seat segment) will drive earnings growth post FY21. Valuation is undemanding at 11.4x FY20E (ex-cash P/E stood at 6.2x), 39% lower than peers’ 18.8x P/E and 15x historical P/E since listed, supported attractive DY of 5.6- 6.0% for FY20-21, strong operational FY20-21 cash flow of RM23-24m p.a. and net cash position of RM98.2m (53.5sen/share or 45.7% to share price). Technically, PECCA is poised for an oversold rebound towards RM1.30-1.40 levels after a brief sideways consolidation.

Source: Hong Leong Investment Bank Research - 11 Dec 2019