MARKET REVIEW

Global. Asian bourses fell in a tepid session with markets in China, Japan, and Thailand were closed on holidays, as spiking Covid-19 cases in the region raised concerns over more curbs and economic pains. After falling 164 pts WoW, the Dow rebounded 238 pts to 34113 following signs of a faster reopening of the economy pushed cyclicals and economic recovery stocks higher, reinforced by aggressive fiscal and monetary stimulus, Fed’s ultra low interest rates, the release of pent-up demand, and progressive vaccination rollouts.

Malaysia. KLCI slid 10.9 pts to 1590.7 amid concerns surging local Covid-19 infections may force the government to re-implement MCO and derail the economic recovery. Market breadth was bearish as 912 losers thumped 301 gainers (G/L ratios fell below 1 in the last 4 days) with a total of 6.7bn shares transacted worth RM4.3bn. Local institutions (+RM116m; 43.3% of trading value) joined retailers (+RM37m; 43.7% of trading value) as the major net buyers whilst foreign investors (-RM153m; 13% of trading value) continued their selling for the 4th consecutive session.

TECHNICAL OUTLOOK: KLCI

Following several unsuccessful attempts to clear the sloping resistance last week and the formation of a few long black candlesticks, the bears seem to have an upper hand now. We would only turn positive if the benchmark can overcome and close above the downtrend resistance (now at 1605) successfully. A successful breakout above 1605 would confirm the next rally is underway towards 1623-1642-1654 (200W SMA) barriers. On the flip side, a decisive fall below the 1585 (lower BB) support may trigger further sell down towards 1577 (200D SMA), 1564 and 1557 zones.

MARKET OUTLOOK

After soaring 28 pts in April, will the adage “sell in May and go away” likely apply to this year? To recap, KLCI experienced an average -0.7% return in May with 12 declines vs 8 gains for the past 20 years. Current weak technical posture and failure to stage a successful breakout above the downtrend resistance may see the index to remain choppy during this May reporting season, as potential wave 4 Covid-19 infections in Malaysia raised concerns over the re-introduction of MCOs and more economic pains. Key supports are pegged at 1585-1577-1564 zones.

On stock selection, Armada (HLIB research-BUY-TP RM0.75) is currently trading at undemanding FY21/22 PE of 5.3/5.3x, supported by strong earnings visibility as its FPSO contract values are not linked to the fluctuations in oil prices. Technically, the stock may stage a downtrend reversal soon in anticipation of a falling wedge formation. A strong breakout above downtrend channel at RM0.41 will lift prices higher towards RM0.43-0.46- 0.48 whilst supports fall on RM0.39-0.385-0.365 levels.

Source: Hong Leong Investment Bank Research - 4 May 2021