RHB Merge Malaysia

China is now a big player.
A key risk is the possible second round effect on markets from an economic slowdown in China, if the WCV pandemic remains unresolved – especially as the global growth cycle is already at a matured stage. China is now the world’s second largest economy, accounting for 16% of global GDP (from 4% in 2002) with extensive trade links and connectivity. The impact on China’s economy should be mitigated by expected stimulus measures. We are also reassured on the progress to finding a cure with the sequencing of the virus’ genome available on 10 Jan, a month after the first case was reported (SARS genome was sequenced in Apr 2003).

Market technicals.
Market trends remain decidedly bearish, with a “Double Top” pattern forming and the FBM KLCI is currently in the key support zone between 1,500-1,550 pts. A breakdown below this should see the next support at 1,300 pts, while the upside resistance is at 1,600 pts.

A second bite of the cherry.
The worst-case scenario is that this WCV pandemic could tip the world into a recession – which is a remote possibility, at this juncture. The Ministry of Finance also stands ready to implement a domestic stimulus package. Consistent with our existing trading market strategy to accumulate on dips, persistently negative market sentiment and weakness should be viewed as opportunities.

Figure 3: Malaysia – quarterly GDP trends (2000-2005)

Figure 8: Earnings outlook and valuations

Figure 9: FBM KLCI – weightings & valuations

Figure 10: RHB Basket sector weightings & valuations

Figure 11: Top BUYs

Currently, we deem the FBM KLCI’s trend as bearish, as the index is still trading below the downtrend line. The aforementioned downtrend line comprises the highest points of Apr 2018, Aug 2018 and Jul 2019. In addition, it remains below the declining medium-term 50-day and long-term 200-day SMA lines – which means that the negatives have been enhanced.

Eyeing the key support zone of 1,550 pts to 1,500 pts. This support zone, which is determined from the psychological spot and is also near the lowest point of 2015, can now be used as a strong support level. Should the key support zone be taken out decisively, we expect the downward momentum to continue. The next support is at 1,300 pts, obtained from the major low in 2011.

Potential “Double Top” pattern. We also notice a downside development in the form of a bearish reversal sign, following the “Double Top” pattern. However, a decisive breakdown from the 1,500-pt threshold is needed to validate the further market retracement.

Towards the upside. The immediate resistance level is at the 1,600-pt round figure, near the downtrend line and above the 200-day SMA line. If this level is taken out, the next resistance will likely be at 1,695 pts, ie near the high of 2 Jul 2019.

Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated: Stock is not within regular research coverage

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