MARKET REVIEW

Regional stock markets ended on a mixed note last Friday as investors digested the developments on the prolonged Covid-19 outbreak as number of cases and deaths continued to increase. Meanwhile, on last Friday, China halved tariff rates on selected US products worth about USD75bn. Shanghai Composite Index and Hang Seng Index added 0.38% and 0.31%, respectively, but the Nikkei 225 declined 0.59%.

Bucking the regional trend, the FBM KLCI ended slightly higher by 0.34% to 1,544.46 pts on Friday, accompanied by positive market breadth; there were 465 advancers as compared to 330 decliners. Market traded volume stood at 2.67bn, worth RM2.26bn. Selected O&G (Naim and Penergy) and construction (Gkent and Suncon) stocks were traded actively higher for the session.

In the US, Wall Street ended mixed as investors remained cautious amid the ongoing Covid-19 episode. However, markets managed to stabilise after the White House said it was considering ways to incentivise Americans to invest in stock market. The S&P500 a nd Nasdaq rose 0.18% and 0.20%, respectively, while the Dow ended marginally lower by 0.09%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI has snapped a two-day losing streak and the MACD Indicator flagged a “Buy” signal (MACD Line crossed above Signal Line). Meanwhile, both the RSI and Stochastic oscillators are recovering but still hovering below 50. The resistance is located around 1,550 - 1,560, while support is set around 1,515-1,530.

Given the increasing Covid-19 cases globally (confirmed cases is above 71k and 1770 deaths), we believe investors will remain cautious in the current situation and upside could be capped in the near term. Nevertheless, market participants could be turning their focus on the upcoming full blown reporting season in the next two weeks and traders could look out for opportunities within the construction and building materials segments in the anticipation of potential stimulus measure announcement by the government.

TECHNICAL OUTLOOK: DOW JONES

The Dow has trended sideways near the all -time-high region, the MACD Line is hovering above zero, while the MACD Histogram has weakened over the past two trading days. The Stochastic oscillator however, is overbought; hence the Dow’s upside could be limited around 29,500-30,000. Support is anchored around 28,500.

In the US, upside may be limited on Wall Street due to the overbought technicals suggested in stochastic oscillator and profit taking activities may emerge. However, the downside risk is likely to be cushioned as the White House is considering ways to incentivise Americans to invest in the stock markets; this may in turn provide buying interest on Wall Street. The Dow’s trading range will be located around 28,500-30,000.

TECHNICAL TRACKER: GTRONIC

Light before the dawn. From a low of RM2.02 (1 Nov) after reporting a weak 3Q19 results, GTRONIC rebounded 19% to RM2.40 last Friday, as investors are likely to price in a flattish 4Q19 results and look forward to stronger FY20/21 prospects, led by the ramp-up of new and better margins laser headlamp products and gesture sensors coupled with new sensors for various applications. GTRONIC is trading at 24.7x FY20E (8% above its peers and 18% below its 5Y mean), supported by decent 3.3% DY (44% above its peers) and a strong 24% FY19-21 EPS CAGR coupled with RM0.18 net cash. Technically, GTRONIC’s uptrend is intact to advance towards RM2.48/2.68/2.90 levels following recent ascending triangle breakout.

Source: Hong Leong Investment Bank Research - 17 Feb 2020