MARKET REVIEW

Global: Asian markets soared in early trade following a 2.1% rally on Dow overnight in anticipation of a sustained large-scale asset purchase by the Fed and Moderna said its vaccine produces a “robust immune response”. Nonetheless, the gains were shed amid escalating US-China geopolitical tensions as China said it would impose retaliatory sanctions on U.S. individuals and entities after Trump signed an executive order that would end preferential treatment to Hong Kong.

The Dow rose 228 pts to 26870 overnight as positive vaccine news and earnings from banks boosted sentiment. Adding to the enthusiasm, the Fed’s Beige Book survey showed U.S. businesses saw an uptick in activity into the beginning of July, overshadowed ongoing US-China geopolitical tensions and rising coronavirus infections.

Malaysia. Bucking overnight rally from Dow, KLCI tumbled 13.2 pts to 1585.6 on profit taking as Covid-19 vaccine hopes took a heavy toll on index-linked glove heavyweights such as Harta (-7.37 pts from KLCI) and Topglove (-5.7 pts from KLCI). Trading volume decreased to 8.24bn shares worth RM5.01bn as compared to Tuesday’s 8.76bn shares worth RM8.22bn. Market breadth was positive with 558 gainers as compared to 456 losers, led by strong gains in FBMSCAP (+1.4%) and FBMACE (+1.1%) indices.

TECHNICAL OUTLOOK: KLCI

After hitting a low of 1476 (29 June), KLCI staged a relief rally of 141 pts or 9.6% to a 6M high at 1617 (14 July) before retreating lower on profit taking at 1585 yesterday. The hanging man formation on 14 July and weakening technical indicators are likely to exert more pressures on KLCI to consolidate further with key support at 1578 (uptrend line support from 1208 low) and 1563 (38.2% FR from 1617-1476). A decisive breakdown may indicate that the benchmark to fall lower towards 1541 (30d SMA) and 1533 (LT downtrend line from 1896) levels. Key resistances remain at 1600 and 1617.

MARKET OUTLOOK

KLCI is likely to witness short term consolidation amid overbought daily and weekly slow stochastic readings after rallying 141 pts or 9.6% to a 6M high at 1617 (14 July) from a low of 1476 on 29 June, compounded by profit taking pullback on index-linked Topglove and Hartalega due to vaccines optimism and stricter measures imposed by investment banks to curb excessive speculation on overheated glove stocks. Key supports are near 1578-1563- 1541 whilst resistances are situated at 1600-1617-1633 levels.

On stock selection, HLIB Research remains upbeat on various attractive embedded assets within DRBHCOM (Buy–RM2.52), despite anticipating another weak 2QFY20 results in August. Overall, Proton has registered a successful turnaround to RM169.4m in FY12/19 (since FY11) post restructuring exercises and new models introductions, and on track with its long term 10-year business plan. Management expects the overall automotive segment to rebound in 2HFY20 following introduction of SST exemptions and l aunching of several attractive models. However, Deftech, CTRM and Bank Muamalat are expected to remain subdued in the near term, affected by Covid-19.

Technically, the stock is poised for a potential flag breakout near RM1.83 in the short term. A successful breakthrough will lift prices higher towards RM2.00 -2.10 territory. Key supports are near RM1.65-1.70. Cut loss at RM1.66

Source: Hong Leong Investment Bank Research - 16 Jul 2020