MARKET REVIEW

Global. Led by heavy losses in Korea (-3.7%), Taiwan (-3.3%) and China (-1.3%), Asian markets ended lower after Fed’s July minutes warned the US economy faced a highly uncertain path to recovery from the Covid-19 amid uncertainties over further government pandemic relief and escalating US-China tensions. Sentiment was further dampened on fading stimulus hopes after China kept its benchmark lending rate for corporate and household loans steady for the 4th month.

After a 4-day losing streak, the Dow gained 47 pts to 27740 whilst the Nasdaq rallied 118 pts to a fresh record high amid a rush to large-capitalization technology and e-commerce shares for safety, offsetting weak economic data from weekly jobless claims and Philadelphia Fed index.

Malaysia. After rising as much as 6.5 pts to 1584.6, KLCI gave up earlier gains to ease 2.5 pts at 1575.4 in line with mixed regional markets and profit taking pullback on selected glove counters and gaming stocks following Tuesday’s rally. Trading volume decreased to 8.56bn shares worth RM7.01bn as compared to Tuesday’s 10.6bn shares valued RM6.92bn. Market breadth was positive with 614 gainers as compared to 447 losers.

After four days of net buying from 12-17 Aug, foreigners resumed selling for a 2nd straight days with RM180m whilst the local retailers (RM42m) and local institutional investors (RM138m) turned net buyers. YTD, foreigners net sold RM19. 6bn shares compared with net purchases by local institutional funds (RM9.7bn) and retailers (RM9.9bn).

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 to finish at 1575.4 on 19 Aug. We reiterate that as long as KLCI can close above 1560 (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) and upticks in technical indicators. Conversely, failure to hold at 1560 could ignite more downward consolidation to lower supports at 1539 and 1511 (200D SMA) levels.

MARKET OUTLOOK

We expect KLCI to remain under pressure today amid downbeat sentiment on RHBBank, Maybank, Genting and GenM following the news that cruise ship operator Genting Hong Kong (neither Genting Bhd nor GenM owns a direct stake in Genting HK) had suspended all payments to creditors (Bloomberg news quoted Maybank and RHBBank are the biggest contributors to two of its secured syndicated loans).

Meanwhile, domestic political uncertainty, a weak August reporting season, increasing numbers of new Covid-19 clusters, the detection of virus mutation D614G (10x more infectious) and simmering US-China geopolitical tension will also cast negative sentiment on the broader market.

On stock selection, HLIB Research maintains a Buy rating on Taliworks with SOP-driven TP of RM1.00 (+18.3% upside), supported by its defensive earnings profile and attractive dividend yields of 7.8% for FY20-21. Technically, after rallying 42.5% to a high of RM0.905 (8 July) from Covid-19 bottom of RM0.635 (24 Mar), the stock has been trending sideways to end at RM0.845. We believe the current consolidation phase could have been exhausted and a successful breakout above immediate neckline resistance near RM0.88 (28 July high) will spur prices higher towards RM0.93 (30 Dec high) and our LT objective of RM1.00 levels. Supports are pegged at RM0.80-0.82. Cut loss at RM0.795.

Source: Hong Leong Investment Bank Research - 21 Aug 2020