MARKET REVIEW

Global. Asian markets ended mildly higher, led by a 2.3% surge on China SHCOMP after the central bank injected fresh funds into the country’s financial system, overshadowed a 0.8% decline on Japan Nikkei 225 amid a larger-than-expected slump in June quarterly GDP. Overnight, the Dow slipped 86 pts to 27845 as investors grappled with lingering concerns over stalled coronavirus stimulus negotiations and US presidential election uncertainty as the election season kicks into higher gear with the Democratic National Convention. Meanwhile, a strong rally in technology companies boosted the Nasdaq by 1% to another fresh record closing at 11129.

Malaysia. Bucking higher regional markets, KLCI eased 3.9 pts to 1560.7 after a choppy trade of 24.5 pts between an intra-day high of 1567.6 and a low of 1543.0, led by persistent selling pressures on glove, telco and banking stocks. Trading volume decreased to 8.8bn shares worth RM4.9bn as compared to Monday’s 10.5bn shares worth RM5.1bn on waning retailers’ participation. Market breadth remained negative with 502 gainers as compared to 595 losers (G/L ratio 0.84x), but substantially improved from Monday’s G/L ratio of 0.22x.

Yesterday, foreigners (RM139m) were the net buyers for the 4th straight sessions whilst local retailers (-RM120m) and local institutional investors (-RM19m) were the net sellers. YTD, foreigners net sold RM19.3bn shares compared with net purchases by local institutional funds (RM9.5bn) and retailers (RM9.8bn).

TECHNICAL OUTLOOK: KLCI

From a 7M peak of 1618 (28 July), KLCI plunged as much as 79 pts to 1539 (12 Aug low) before trending sideways at 1560.7 yesterday. As long as KLCI can close above 1559 (50D SMA), chances for the benchmark to advance further in the near term to 1584 (30D SMA), 1591 (9 June high) and 1600 remain favourable, supported by the long-legged Dojis (4, 12 and 17 Aug). Conversely, failure to hold at 1559 will confirm that a deeper consolidation is underway with key support platforms at 1539 and 1511 (200D SMA) levels.

MARKET OUTLOOK

While KLCI is expected to continue its short term range bound consolidation (within 1539- 1600 range) amid domestic political uncertainty, a weak August reporting season, increasing numbers of new Covid-19 clusters and the detection of virus mutation D614G (10x more infectious) and heightened US-China geopolitical tension, we notice that the consolidations on ACE and smallcaps could be reaching the tail end following a technical rebound on the FBMACE (+2.6% after sliding 6.9% WoW) and FBMSCAP (+0.21% after tumbling 4.6% WoW) indices yesterday.

On stock selection, we expect trading platform providers such as Eforce (RM0.505, Notrated) and N2N (RM0.785, Not-rated) are likely to exhibit strong 2Q20 results (similar to Bursa), riding on the rising trade volume on Bursa Malaysia. Technically, both stocks are likely to see limited downside risks following recent corrections from their peaks. For Eforce, a decisive reclaim above RM0.525 will spur prices higher towards RM0.58-0.61 zones whilst supports are pegged at RM0.465-0.49. Cut loss at RM0.46.

For N2N, a decisive breakout above RM0.82 will spur prices higher towards RM0.87-0.93 zones whilst supports are pegged at RM0.74-0.76. Cut loss at RM0.735.

Source: Hong Leong Investment Bank Research - 18 Aug 2020