MARKET REVIEW

Global. Led by steep selloffs in Australia (3.0%), India (1.6%) and Korea (1.3%), Asian markets plummeted last Friday in line with a 2.8% plunge on Dow. Investors’ exuberance was shaken ahead of US jobs data later in the evening session and potential stalemate in Congress over additional pandemic aid.

Ahead of the long holiday weekend in observance of Labour Day (7 Sep), the Dow sank as much as 628 pts (following Thursday’s 808-pt rout) amid an extended slide in technology heavyweights due to concerns about high valuations, a slower-than-expected increase in Aug nonfarm payrolls, deadlock for a fresh coronavirus stimulus package and looming uncertainty ahead of the US presidential election on 3 Nov. However, bargain hunting activities reduced the losses to 159 pts at 28133 (-521 pts WoW) after Powell said that the economy’s recovery from the coronavirus pandemic has a long road ahead and interest rates will remain low for a long time.

Malaysia. In tandem with the spillover effect from Dow’s plunge overnight, KLCI skidded as much as 16.7 pts to 1498.7 before staging a technical rebound to end a tad higher to 1515.9 last Friday (-9.3 pts WoW), helped by bargain hunting activities on TENAGA, HARTA, HLBANK, DIGI and DIALOG. Trading volume reduced 2.4bn to 7bn shares valued at RM4.1bn compared with Thursday’s 9.4bn shares worth RM5.4bn. Market breadth was bearish with 388 gainers vs 657 losers.

Last Friday, local retailers were the sole buyers (RM67m) whilst foreigners and local institutional investors sold RM36m and RM31m equities, respectively. WoW, local institutional (RM93m) and retail (RM611m) players were the main buyers whilst foreigners were sellers with RM704m shares. YTD, foreigners net sold RM20.89bn shares compared with net purchases by local institutional funds (RM9.98bn) and retailers (RM10.91bn).

TECHNICAL OUTLOOK: KLCI

Despite staging a technical rebound above 1498 (4 Sep low) and 1508 (200D SMA), KLCI is not out of the woods yet in this seasonally weak September outing (KLCI tumbled ~1.7% from 2000-2019), trapping in a downtrend channel after sinking 102 pts from the YTD peak of 1618 (28 July) to 1515 last Friday (-9.3 pts WoW). Failure to hold at 1508 would signal that the index is ready to slip lower at 1498 and 1480 levels (30W SMA). On the contrary, only a decisive reclaim above key 1542 (10D SMA) and 1556 (downtrend channel) hurdles would give the bulls a big boost toward 1568 (30D SMA), 1590 (100W SMA) and 1600 resistance levels.

MARKET OUTLOOK

Ahead of the MPC meeting on 10 Sep (economists are split over whether a 0.25% cut is warranted), KLCI is expected to extend its consolidation mode as volatility remains elevated amid the domestic political uncertainty (ahead of the 26 Sep Sabah state election), the resurgence of Covid-19 cases in global hotspots, escalating US-China geopolitical tension, Wall St’s swings amplified by worries of a Covid-19 resurgence in the fall and winter (although accelerated vaccine development timelines may cushion sharp correction), the stalemate in Congress over additional pandemic aid and heightened political uncertainty ahead of the US presidential election on 3 Nov. Key supports are situated at 1508-1498- 1480 whilst resistances are pegged at 1542-1556-1568 levels.

On stock selection, HLIB Research maintains a BUY rating on FOCUSP with TP of RM0.88 (47.9% upside). FOCUSP’s risk-reward profile remains attractive amid undemanding FY21 P/E at 10.8x (42.9% discount against peers 18.9x), supported by a steady 10.6% FY19-21 EPS CAGR and decent 3.4% FY21 DY. Overall, we are feeling positive about the group’s prospects going forward, encouraged by improving retail activities in malls for both optical and F&B coupled with its fast growing F&B corporate sales, leveraging on the strong convenient chains to show case its pastries, mochi puff and pudding.

Technically, after rallying 53% to RM0.62 on 26 Aug, FOCUSP may trend sideways to build a base at RM0.54 (50% FR) and RM0.52 (13 May high) territories. We expect the stock to resume its uptrend again after a brief sideways consolidation, targetting RM0.66 (26 Aug high) and RM0.70 psychological levels before retesting all-time high of RM0.77 (26 Feb). Cut loss at RM0.51.

Source: Hong Leong Investment Bank Research - 7 Sept 2020