MARKET REVIEW

Asia’s stock markets ended mixed following the conclusion of the FOMC meeting where the Fed kept the interest rates unchanged and indicated to remain on hold for the interest rates at least until 2020. Also, traders were cautious in the absence of trade deal between the US and China during Asian trading hours. Shanghai Composite index traded lower by 0.30%, but Nikkei 225 and Hang Seng Index rose 0.14% and 1.31%, respectively.

On the local front, the FBM KLCI trended higher by 0.27% to 1,567.34 pts led significantly by Petronas-related heavyweights. Market breadth was neutral, accompanied by 2.47bn shares traded for the session, worth RM2.11bn. Still, property stocks such as SIMEPROP and UEMS have traded higher for the day.

Wall Street managed to close higher as investors cheered positively after US and China have mostly agreed on a phase one trade deal, where the trade deal may include China’s commitment to buy more farm products, protect intellectual property and opens the Chinese market for financial services. In return, US agreed to defer tariffs that were supposed to impose this Sunday. The Dow and S&P500 jumped 0.79% and 0.86%, respectively, while Nasdaq advanced 0.77%.

TECHNICAL OUTLOOK: KLCI

The KLCI has rebounded for second session consecutively and the MACD indicator has recovered mildly (albeit below the zero level). Meanwhile, both the RSI and Stochastic oscillators are trending higher, out from the oversold region. We opine with the improving technicals, the KLCI could regain traction towards 1,580-1,600, while support is located around 1,550.

With the US defer the scheduled tariffs on Chinese goods this Sunday, we think the buying interest is likely to spillover towards stocks on Bursa and investors could focus on technology stocks in the near term. Also, coupled with the window dressing activities, the FBM KLCI may revisit 1,580-1,600 levels.

TECHNICAL OUTLOOK: DOW JONES

The Dow has experienced a flag formation breakout and the MACD indicator has expanded positively over the past few sessions. Meanwhile, both the RSI and Stochastic oscillators are trending higher above 50. Hence, we opine that the Dow may trend higher moving forward. Resistance will be set around 28,500, while support is anchored along 27,400.

After several weeks of deadlock situation on the trade agreement between the US and China, both parties have agreed on the phase one trade deal; market sentiment are likely stay positive with investors flowing back into equities more committedly. The Dow could mark higher territories moving forward, with upside target located around 28,500.

TECHNICAL TRACKER: ROHAS

Ripe for further rebound in anticipation of improving 4Q19 results and a strong FY19-21 EPS CAGR of 22%. We are sanguine on ROHAS’s mid- to long-term outlook, underpinned by completion of its loss-making HGPT legacy contracts as well as tower fabrication orderbook at RM200m (1.1x cover of FY18 revenue) and EPCC projects at RM340m (1.5x cover of FY18 revenue). In addition, potential fabrication and EPCC orderbook replenishments would be buoyed by Sarawak state’s initiative to rollout 5,000 towers and the transmission line (JV with Muhibbah) from Butterworth to Penang Island which will run parallel to the Penang Bridge (estimated project value: RM1bn). Technically, after building a base above 50D SMA, ROHAS is poised for an oversold rebound towards RM0.695-0.83 levels, in anticipation of a better 4Q results and a strong FY19-21 EPS CAGR of 22% coupled with undemanding valuations at 10.2x FY20E P/E and 0.96x P/B (4% and 40% below PESTECH’s P/E and P/B).

Source: Hong Leong Investment Bank Research - 13 Dec 2019