MARKET REVIEW

Global: Despite rising 0.7% on China SHCOMP as July factory activity beats expectations, Asian markets ended lower on grim US 2Q20 GDP (-32.9% YoY) and a resurgence of Covid-19 cases across the US and Asia curbed global recovery hopes. Last Friday, the Dow tumbled as much as 300 pts amid a lack of progress on Capitol Hill toward another coronavirus aid package, a downbeat July consumer sentiment index and Fitch’s downgrade of US credit outlook to 'negative' on COVID-19 and election uncertainty. However, the index rebounded sharply to end 115 pts higher at 26428 (-0.2% WoW), inspired by blowout earnings from tech behemoths such as Apple, Amazon, Facebook, and Google parent Alphabet.

Malaysia. KLCI plunged as much as 26.4 pts to 1585 before reducing the losses to 7.7pts at 1603.8 amid the political crisis in Sabah leading to a dissolution of the state assembly and selling pressures on selected banking shares following the targeted moratorium extension for another three months until end Dec 2020 Trading volume increased to 11.92bn shares worth RM6.16bn as compared to Wednesday’s 10.54bn shares valued at RM6.95bn. Market breadth was negative with 390 gainers as compared to 688 losers.

For the week ended 30 July, foreign and local institutional funds were the net sellers with RM256m and RM226m, respectively while retailers bought RM482m shares. In July, foreigners sold RM2.56bn shares compared with purchases by local institutional funds (RM0.51bn) and retailers (RM2.06bn).

TECHNICAL OUTLOOK: KLCI

In the short term, KLCI is likely to stuck in an extended range bound consolidation within 1563 (17 July low) and 1618 (29 July high) in the wake of ongoing domestic political uncertainty and August reporting season, a resurgence of Covid-19 cases and intensified US-China geopolitical tension. Only a successful breakout above 1618 hurdle would open the door for higher targets at 1633 (61.8% FR from 1896 and 1208) and 1644 (weekly upper BB) zones. On the flip side, a sharp fall below 1584 (30 July low) and 1563 would trigger a renewed selloff towards 1538 (50d SMA) and 1510 (200D SMA) territory.

MARKET OUTLOOK

As the impact of past stimulus measures fading and given some evidence that the global recovery has already stalled amid a 2nd wave Covid-19 infections fear coupled with lingering US-China geopolitical conflict, it remains to be seen what will help to keep global stock markets elevated in the coming weeks. On the domestic scene, ongoing political tussles in PH and PN and expectations of worsening reported numbers for 2Q20 (both GDP and corporate results) are the risks that we may see an extended consolidation in August. Technically, a successful breakout above 1618 (29 July high) neckline resistance would spur index higher towards 1633-1644 zones whilst a sharp fall below 1563 would trigger further selldown at 1510-1538 territory.

On stock selection, Texcycle (Not-rated, RM0.395, BVPS RM0.42) is expected to perform better in the coming quarters, supported by its recovery and recycling business and as RE business comes onstrem (The Edge Malaysia 3-9 Aug). Technically, the stock is still engaged in a sideways consolidation in the near term, pending a successful breakout above RM0.415 (daily upper BB). Higher upside hurdles are situate near RM0.45-0.51 whilst supports are pegged at RM0.36-0.385. Cut loss at RM0.35.

Source: Hong Leong Investment Bank Research - 3 Aug 2020