Market review

• The MSCI Asia Pacific Index rose for a fifth day, adding 0.3% last Friday and 4.2% wow to 133.67, thanks to better-than-expected 2Q16 Chi na’s GDP data. Sentiment was also boosted by another fresh record DJIA close, stronger-than-expected US economic data and higher likelihood of central bank stimulus.

• Tracking positive regional markets, a well-received BNM 0.25% OPR cut and speculation of looser global monetary policies, KLCI rallied 13.6 pts last Friday and spurred the index to record a 1.45% wow gain.

• Last Friday, the Dow grew as much as 51 pts intraday to 18557 (+8.3% from Brexit low) amid as sentiment was boosted by growing expectations that central banks and governments will step up fiscal and stimulus measures to support slowing global economy and a better-thanexpected retail sales. However, profit taking reduced early gains to 10 pts at 18517. WoW, the Dow soared 2% and advanced 3rd week in a row.

Technical Insights

• Upside bias to test 1683 levels

• After inching up above 1666 (200-d SMA) last Friday, we remain upbeat that the rebound from 1611 (B rexit’s low) will continue as the index is able to maintain its positive posture above the 10-d/20-d/30-d/50-d SMAs and downtrend line. A more convincing close today above 1670 (100-d SMA and 50% FR) will spur the index higher towards resistances at 1683 (61.8% FR) and 1700 levels.

• On the flip side, a decisive break below key support of 1639 (23.6% FR) will signal an end to the rebound and the index is likely to retrace further to 1620-1630 zones.

Market Strategy

• Riding high on easing fears of brutal 'Brexit' fallout and hopes of more stimulus from central banks and governments, possibility of further easing by BNM by end Dec and expectations of more mega project roll -outs by Government in the near term, KLCI’s near term outlook is still tilted to an upside bias towards immediate resistances at 1683-1700 levels.

• However, we still expect global markets to remain choppy as profit taking may emerge and stoke demand for safe havens again after recent sharp relief rallies, as sentiment may be dampened by recent terrorist attacks and Turkey’s coup.

• Closed positions (FIG5). We took profit on UEMS (5.8% return) after hitting above R2.

• Stock on radar (refer separate Trading idea report). We believe CSCSTEL is a good proxy to high dividend yield seekers, especially in an envi ronment of tepid earnings growth and ultra low/negative interest rates.

Source: Hong Leong Investment Bank Research - 18 Jul 2016