Global. Asian markets ended mixed as sentiment was soured by the surging Covid-19 Delta variant cases, slowing economic data from the US and China and persistent regulatory tightening measures by China in sectors including gaming, technology and private education. The Dow closed at a record high (+278 pts or 0.8% to 35116), led by gains in O&G, Apple and healthcare stocks amid upbeat corporate earnings season and optimism of a strong US economic growth despite a surge in the Delta variant Covid-19 cases following Dr. Fauci’s remark that the US is unlikely re-impose broad shutdowns.

Malaysia. KLCI staged a 7.3-pt rebound, led by bargain hunting on recently bashed down plantation, banking and O&G stocks, despite nagging worries over the elevated local Covid- 19 cases and political uncertainty. Market breadth remained negative with 494 losers beat 473 gainers (G/L ratio fell below 1 in the last 7 sessions). In terms of fund flows, foreign investors remained net sellers amounting to RM118m whilst domestic institutions and local retail investors were net buyers of shares totalling RM45m and RM73m, respectively.

TECHNICAL OUTLOOK: KLCI

We have been negative on the KLCI for the past few weeks, and the index is still gyrating within our envisaged 1474-1534 trading band. In the short term, the odds will continue to favour the bears, unless the index can reclaim above key resistances of 1510-1534 levels successfully. A strong breakout above these barriers would lift the benchmark out of the range bound consolidation mode to retest 1545-1556-1573 zones.

MARKET OUTLOOK

After plunging almost 40 pts in the past five weeks, KLCI finally staged a long-awaited 7.3 pts technical rebound at 1500.3 yesterday. In the near term, we opine that the odds will continue to favour the bears and any rebound is likely to be capped at 1510-1534 levels amid local political stalemate (after UMNO Supreme Council decided to withdraw support for PN yesterday), unwavering new daily Covid-19 cases and the upcoming August reporting season. Nevertheless, we believe downside risks are likely to be cushioned at 1452-1474 zones, given the aggressive vaccination rates to achieve the targeted 40% and 70% goals by end of Aug and Sep, as well as the government’s optimism that most states will move into Phase 4 of the NRP by Oct-Nov.

On stock selection, KHJB (Kim Hin Joo, was listed in July 2019) is poised for a triangle breakout after retracing from the 52-week high of RM0.335 (22 June) to a low RM0.25 (30 June) before staging a rebound to close at RM0.28 yesterday. To recap, KHJB’s (trading at trailing 18x P/E and 1.3x P/B) proven track record of over 35 years in marketing new-born and parenting products makes it one of the most trusted retail specialists in Malaysia, operating a wide retail network across the country.

Recent strong close above multiple SMAs and bottoming up indicators are likely to lift the stock above immediate resistance at RM0.285 (downtrend resistance), with further upside targets pegged at RM0.30-0.325-0.335 levels. Key retracement supports are pegged at RM0.25-0.26 zones. Cut loss at RM0.24.

Source: Hong Leong Investment Bank Research - 4 Aug 2021