MARKET REVIEW

Global: Bucking a 2.1% rally on China SHCOMP, most Asian stocks ended mixed as investors awaited the conclusion of the FOMC policy meeting this morning and lingering fears of a budding economic recovery, complicated in recent weeks by a new wave of coronavirus outbreaks across Asia.

Overnight, the Dow rose 160 pts to 26539 as Fed pledged to use its “full range of tools” to support the economy until they are confident the economy has weathered the Covid-19 crisis amid a resurgence of coronavirus cases. Meanwhile, investors are also monitoring on the four Big Tech antitrust hearing, the wrangling over coronavirus aid and a barrage of blue-chip corporate earnings reports.

Malaysia. After hitting a fresh 7M high of 1618 intraday, KLCI tumbled as much as 28 pts to 1590 amid losses in glove and banking stocks ahead of PM’s annoucement on banks moratorium extensions. On the back of a more positive targeted loan moratorium announcement (vs market concern of a blanket category) after 3pm, KLCI rebounded strongly from a low of 1590 to end 1.5 pts higher at 1611.4.

TECHNICAL OUTLOOK: KLCI

After a few attempts, KLCI finally broken the 7M high resistance at 1618 yesterday against previous peak at 1617.4 (14 July) before easing at 1611.4 in a volatile fashion. Today, the becnhmark is likely to retest 1618 or higher amid the formation of hammer candlestick and an uptick in stochastic indicator whilst the MACD and RSI readings are trending sideways. Breaking 1618 hurdle would open the door for higher targets at 1633 (61.8% FR from 1896 and 1208) and 1645 (weekly upper BB) zones. On the flip side, a sharp fall below 1586 (20D SMA) and 1563 would trigger further selloff to 1534 (50d SMA) territory.

MARKET OUTLOOK

Ahead of the long weekend break (Hari Raya Haji holiday on 31 July), trading sentiment is likely to turn cautious today, given nagging concerns over subdued fundamentals such as tit-for-tat actions between the US and China, fluid domestic politics, rising new daily coronavirus cases and expectations of worsening reported numbers for 2Q20 (both GDP and corporate results). Technically, a successful breakout above 1618 (29 July high) neckline resistance would spur index higher towards 1633-1645 zones whilst a sharp fall below 1563 would trigger further selldown at 1530-1550 territory.

On stock selection, HLIB Research has upgraded ARMADA (RM0.225, BVPS RM0.51) to Buy (from Hold) with a new RM0.41 (+82% upside) Bumi Armada has experienced sequential improvements in its quarterly core net profit, driven mainly by its improving FPSO, supported by cheap valuations at <5x FY20 EPS, improving financial position as interest cover, net debt/EBITDA ratios and repayment schedules have all improved significantly based on 1QFY20 numbers. Technically, the stock is poised for a sideways consolidation breakout in the near term, pending a successful breakout above RM0.24 (daily upper BB). Higher upside hurdles are situated near RM0.28-0.32 whilst supports are pegged at RM0.195-0.20. Cut loss at RM0.19.

Source: Hong Leong Investment Bank Research - 30 Jul 2020