MARKET REVIEW

Global: Led by a stellar 5.7% surge on SHCOMP to 16M high at 3333, Asian markets advanced as sentiment was boosted by China government’s swift measures in combating coronavirus outbreak in Beijing, hopes of further improvement in China’s economic recovery, policy easing and continued reforms in the capital markets. The Dow soared 460 pts or 1.8% at 26287 whilst the Nasdaq Composite jumped 226 pts or 2.2% to another fresh record closing at 10433. The rally was backed by a rebound in U.S. services industry activity in June and expectations of a revival in China’s economy, despite worries of the economic toll of unfettered U.S. virus cases.

Malaysia. In sync with bullish regional markets, KLCI rallied 24.3 pts or 1.56% to 1576.9, registering its 6th consecutive gain, spurred by active buying interests in oil & gas and glove companies. Trading volume soared to 8.7bn shares valued at RM5.07bn as compared with last Friday’s 7bn shares worth RM3.8bn. Market breadth was pos itive with 744 gainers against 333 losers.

TECHNICAL OUTLOOK: KLCI

After peaking at 1591 (9 June) from the bottom of 1208 (19 Mar), KLCI tumbled as much as 115 pts to 1476 (29 June low) before paring off the losses to 15 pts at 1576 yesterday. On the back positive external vibes and bullish technicals coupled with the return of foreign buying (after relentless selling since 16 June), KLCI has further legs to retest 1591 (9 June high) and the long-awaited 1600 psychological barrier, before expecting a profit taking pullback ahead of the Parliament resitting on 13 July. On the flipside, violating the 1510 (200D SMA) and 1530 (LT downtrend line from 1896) supports would imply further weakness towards 1500 and 1483 (30W SMA) levels.

MARKET OUTLOOK

Riding on the bullish technical momentum and robust economic data coming out from the US and China, and hopes an effective vaccine should be ready for the second wave of COVID-19 would fuel optimism over further KLCI recovery momentum ahead. Moreover, the return of foreign buying (after a 13th straight net selling since 16 June), as well as an expectation of an OPR cut on 7 July (based on consensus), the index could trend higher towards 1591-1600 region before imminent profit-taking ahead of the Parliament resitting on 13 July.

Despite widely expected to incur hefty losses and trading at undemanding 1x P/B (vs 10Y average 1.5x), Airasia (RM0.895-SELL-TP RM0.48) is likely to experience further selling pressures today after reported a RM803m net loss in 1QFY20. Fundamentally, the on going uncertainty of Covid-19 as well as the “new normal” is affecting consumer behaviour in air travel demand. The gradual opening of domestic and international routes is expected to introduce stiff competitions among airlines, as they compete for the now smaller pie market in order to maximise their fleet utilization. There is a further risk of AAG’s further capital raising exercise (cash calls) in order to ensure sufficient liquidity.

Technically, share prices may continue to witness selling pressures. Key supports are pegged at RM0.80 (50% FR from RM0.50-1.10), RM0.75 (uptrend line support from Covid- 19 low at RM0.50) and RM0.70 levels. On the flip side, a decisive breakout above RM0.945 (2 July high) will spur prices higher to RM0.96 (23.6% FR) and RM1.00 territory.

Source: Hong Leong Investment Bank Research - 7 Jul 2020