MARKET REVIEW

Global: Despite notable 1.7% rally on China’s SHCOMP index amid hopes of an economic recovery, regulatory and retail support, most of the Asian markets ended mixed. The slump on Wall St as surging coronavirus outbreaks sapped the buying enthusiasm, given the knotty Covid-19 economic entanglement heightened worries that a much deeper recession is on the way. The Dow staged a 177-pt technical rebound to 26067 after tumbling 397 pts on 7 July and the Nasdaq rallied 149 pts at a fresh 10493 record closing high, supported by technology shares as early signs of an economic rebound and hopes that the upcoming July reporting season to provide a reason for optimism as consensus expects the 2Q20 will be the bottom, overshadowed concern about further lockdowns due to a jump in coronavirus cases across the country.

Malaysia. Tracking higher markets in China and Asean, KLCI rose 16.8 pts to 1583.5 on strong foreign buying valued at RM229m (the 2nd highest following RM257m on 17 Jan) and a fresh liquidity-driven buying from local investors given the prevailing low interest rates environment. Trading volume surged to a new record high at 11.81bn sharers worth RM4.36bn against Tuesday’s 7.8bn shares valued at RM4.9bn. Market breadth was bullish with 687 gainers against 369 losers.

TECHNICAL OUTLOOK: KLCI

After registering a 10.2-pt profit-taking pullback on 7 July following a massive 100-pt surge in the last six consecutive days, KLCI staged a 16.8-pt technical rebound at 1583.5 yesterday, in line with the bullish China and Asean markets and helped by the return of strong foreign buying interests. In our view, as long as the 1552 uptrend line support from 1208 is not violated, ongoing short term positive run is expected to continue with key resistances at 1591 (9 June high) and 1600 psychological barrier, before reaching our formidable hurdle at 1617 (30 Dec high). On the flipside, breaking the 1552 support would witness further selling pressure towards 1533 (LT downtrend line from 1896) and 1509 (200D SMA) levels.

MARKET OUTLOOK

Taking cues from recent favourable economic data coming out from the US and China, hopes of an effective Covid-19 vaccine, potential return of foreign funds buying on emerging markets (including Malaysia), and prevailing low interest rates environment, KLCI could trend higher towards 1591-1617 region before imminent profit-taking resurfaces next week when Parliament session starts on 13 July. Key near term supports are situated at 1552-1530-1509 zones.

On stock selection, ahead of the potential snap election in 2H20, we believe media stock such as STAR (RM0.355- HLIB Research TP RM0.41) could attract further buying support, playing catch-up against active buying interest in Media Prima yesterday (+9.4% to RM0.175 with 82m shares transacted vs 90D average 12.3m shares). Currently, Star is trading at 67% discount to its BVPS RM1.09 and 30% to its 51 sen net cash per share, grossly pricing in the industry’s structural and cyclical shifts coupled with its subdued prospects. Moreover, potential re-development or disposal of its properties could help unlock values although it could take some time due to the prevailing sluggish property market. To recap, its properties have not been re-valued for decades, which analysts estimated to hold a collective market value at least RM500m or 67sen per share (vs NBV RM155m).

Technically, the stock is poised for a bullish flag breakout. When the upper trendline resistance on the flag breaks above RM0.375, it will trigger the next upleg of the trend move towards RM0.40-0.44 territory. Support is near RM0.33-0.34. Cut loss at RM0.32.

Source: Hong Leong Investment Bank Research - 9 Jul 2020