MARKET REVIEW

Global: Asian markets were firmer, spurred by strong gains in Japan’s Nikkei 225 (+2.2%) and China’s SHCOMP (+1.8%) indices amid ongoing optimism on liquidity, policy support coupled with positive analysis from Gilead Sciences experimental remdesivir therapy, overshadowed worries over spiking Covid-19 cases worldwide and Beijing’s sanctions against U.S. officials and entities.

Overnight, the Dow rallied as much as 564 pts to 26639 while Nasdaq surged 207pts to a new record high at 10825 in early trades, boosted by positive news that the US FDA granted “fast track” status to a pair of vaccine candidates produced by Pfizer and BioNTech SE and chipmaker Analog Devices proposed to buy rival Maxim Integrated for US$21bn deal. However, the US markets staged a stunning reversal from intraday highs in the final hour as the Dow plunged 553 pts to finish only 11 pts higher at 26085 whilst Nasdaq tumbled 435 pts to end 227 pts lower to 10391, as rapidly-rising new daily virus cases led California’s governor to order businesses across the state to shutter once again.

Malaysia. Taking cues from positive recovery on Dow last Friday and Brent oil prices coupled with a strong performance by index-linked glove stocks given the surge in daily global Covid-19 infections, KLCI rallied 14.6 pts to a 6M high at 1606.4. Trading volume increased to 9.55bn shares worth RM5.7bn as compared to Friday’s 8.70bn shares valued at RM5.04bn. Nevertheless, market breadth was negative with 425 gainers vs 657 losers amid increasing profit-taking following strong gains in the past two weeks.

TECHNICAL OUTLOOK: KLCI

After hitting a low of 1476 on 29 June, KLCI continued to power ahead to finish 14.6 pts higher at 6M high at 1606 yesterday, recording its 9 gains in the last 11 trading sessions. In our view, the strong neckline resistance breakout above 1591 (9 June high) and bullish RSI/MACD indicators bode well for the benchmark to advance further towards 1617 (30 Dec high) and 1626 (weekly upper BB) before profit taking taking place. Overall, the negative Up/Down ratio (refer 10D market breadth table) on 10 & 13 July as well as steeply overbought stochastic reading could act as a yellow flag, warning that the upward momentum of the current uptrend may be slowing down. On the flipside, breaking the 1572 uptrend line support (from 1208 low) could witness further fierce selling pressure towards 1533 (LT downtrend line from 1896) and 1509 (200D SMA) levels.

MARKET OUTLOOK

In sync with a sluggish performance on Wall St overnight due to Covid-19 pandemic resurgence and the reintroduction of containment measures coupled with rising US-China geopolitical tensions after Washington rejecting Beijing’s claims in the South China Sea, KLCI is expected to face some selling pressures amid overbought daily and weekly slow stochastic readings after rallying 130 pts in the last 11 trading sessions (from 1476 low on 29 June). However, downside risk may be cushioned by active buying interests on benchmark glove stocks amid the virus resurgence. Key supports are near 1572/1561 whilst resistances fall at 1617/1626 zones.

On stock selection, we believe a 40% plunge from YTD high of RM0.77 (21 Feb) to RM0.465 yesterday has made Focusp’s (owns and operates eye care centres and F&B business i.e. café and bakery business under the brand name of “Komugi” and third party sales) valuation attractive again (9.3x FY21E P/E with 4.3% DY). Despite anticipating a weak 2Q20 results due to extended MCO, we expect a better 2H20 following its pivot to e commerce and cost savings from rental waivers and reduction in staff cost coupled with the expanding F&B sales to Family Mart and other food outlets (Sushi King, Secret Recipe) and potential entry of new clients.

Technically, Focusp has successfully staging a LT downtrend line breakaout with high volume yesterday. Given the widening upper Bollinger band, the stock is poised for a further upside to retest RM0.50-0.52-0.55 levels in the near term. Key supports are near RM0.43-0.42-0.40. Cut loss at RM0.39.

Source: Hong Leong Investment Bank Research - 14 Jul 2020