Market review

• In the wake of overnight fresh new high in S&P and extended rally in NIKKEI following Shinzo Abe’s pledge of new stimulus after his coalition won an election in Japan's upper chamber by a landslide, the MSCI Asia Pacific Index jumped for a 2nd straight session to end 0.8% higher at 131.8. Sentiment was also boosted by subsiding fears over U.K. politics with the imminent appointment of a new U.K. prime minister, Theresa May and hopes for stimulus from global policymakers to limit Brexit fallout.

• Tracking higher regional markets, KLCI rebounded from intraday low of 1647.9 to end flat with a 0.1-pt gain at 1654. Market breadth was marginally positive with 374 gainers as compared to 369 losers.

• The Dow soared 121 pts to a fresh new record close at 18347 (previous closing 18312), supported by a rally in energy shares and stronger -than-expected earnings from Alcoa coupled with last Friday’s strong US June jobs data. Sentiment was also helped by optimism that the Fed may delay a rate hike until end 2016 to counter the negative effects of Brexit and may not want to rock the boat before the Nov’s presidential election.

Technical Insights

• Still optimistic to test 200-d SMA

• The positive close from falling as much as 6 pts intraday signaled KLCI resilience for a resumption to break last week’s high of 1657 soon. A decisive breakout above 1657 will drive index higher to test 1666 (200-d SMA) and 1671 (50% FR) levels, with stiffer resistances slated at 1684 (61.8% FR) and 1700 territory.

Market Strategy

• Taking cue from a fresh new high in Dow, a strong rebound in oil prices and strong Ringgit performance coupled with expectations of more mega projects roll-outs by Government in the near term to stimulate local economy, KLCI is expected to trend higher towards immediate resistances at 1657-1665.

• However, we still expect global markets to remain choppy as profit taking may emerge after recent sharp relief rallies (without material changes in fundamentals). Meanwhile, potential rise in regional geopolitical tensions cannot be discounted after an international court rebuked Chi na’s (it said the ruli ng is null and voi d and won’t res pect it ) claims over the South China Sea.

• Stock on radar (please refer Trading idea report). We expect WCT (undemanding valuations against its peers ) share prices to react positively in anticipation of the more mega projects roll-out by Government in 2H16. The stock is slated for further upside amid downtrend resistance breakout yesterday. Key upside targets are RM1.68-1.76 while supports fall on RM1.45-1.47. Cut loss at RM1.44

Source: Hong Leong Investment Bank Research - 13 Jul 2016