Market entering lacklustre period, says HLIB Research

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KUALA LUMPUR (July 6): Hong Leong IB Research (HLIB Research) has maintained its end-2017 FBM KLCI target at 1,760 based on 16.0x CY18 earnings, and said that technically, the recent correction of FBM KLCI that decisively breached below the upward trendline at 1,780 has formed a pullback phase in the near term.

In a 2H17 outlook and strategy note today, the research house said that based on weekly indicators, the weekly MACD Line has crossed below the weekly signal line, flashing a "sell" signal.

Meanwhile, it said the weekly Stochastics oscillator has also turned lower, out from the overbought region.

It said both indicators are suggesting that the momentum is weakening, with stronger support at 1,740, adding that resistance is situated near 1,800.

On the outlook for second half of 2017, HLIB Research said it expects low base boost to global growth to diminish in 2H17.

It said several constraints will also limit upside to global growth, including scaling back of Trump's pro-growth measures, China's deleveraging policy, and uncertain commodity trend.

"Fed balance sheet dial-back, if initiated, represents a reversal of global liquidity and could affect global asset prices.

"After a spectacular growth acceleration in 1Q17, we expect Malaysia's GDP growth to moderate in 2H17, as low base effects ebb while global growth becomes more modest.

"Nevertheless, macro fundamentals remain largely intact which will limit downside of the market," it said.

Commenting on the local currency, HLIB Research said that after appreciating briefly in 2Q17, it sees limited upside for ringgit in 2H17 as weakening bias of crude oil prices, Fed's dial-back on balance sheet and series of local government bond maturity could cap gain in ringgit.

On overall market theme, the research house said it does not foresee emergence of visible market theme in 2H17 as macro variables and sector dynamics are projected to remain stable.

"We expect the 14th General Election to be held in March 2018," it said.

"We now advocate a more defensive stance in stocks with earnings certainty and/or growth catalyst. We also opine that earnings of export sector may regain luster riding on still-weak ringgit and continued global expansion.

"After a cumulative foreign buying of RM10.5 billion in January-May, we reckon there is not much local catalyst for foreigners to step up exposure in Malaysia's stock market," it said.