Market review

• Asian markets ended mostly higher on Monday, as a strong China’s services PMI and Caixin manufacturing PMI (a private survey of small-to-medium sized companies) offset a slowdown in official manufacturing PMI (which tracks the health of large and state-owned enterprises). Sentiment was also boosted by a reduced bets for U.S. interest-rate increases after a dismal 2Q16 GDP data last Friday and prospects for more stimulus by Japan’s government spurred demand for higher-yielding assets.

• Tracking bullish Asean markets in JCI (+2.8%), PSEI (+1.3%) and STI (+0.8%) coupled with a strong 1% gain in Ringgit/US$, KLCI rebounded 12 pts to 1665.3, partially recouping the last week’s 14.2 pts loss. Key gai ners are GENM (+11 sen to RM4.40), CIMB (+11 sen to RM4.50), SIME (+18 sen to RM7.60), AMMB (+9 sen to RM4.39) and PETCHEM (+9 sen to RM6.64).

• The Dow fell as much as 77 pts intraday as sentiment was dampened by lower energy-related stocks due to sliding oil prices, slower July ISM manufacturing data coupled with last Fri day’s sluggish US 2Q GDP. However, encouraging performance from Apple and Alphabet managed to boost sentiment and reduced the early losses to 28 pts, chalking its 6th straight losing streak.

Technical Insights

• Extended consolidation unless closing above 1675 convincingly

• Yesterday’s KLCI sharp rebound has improved the technical indicators outlook after closing above 10-d & 20- d SMAs again. However, we reiterate our view that as long as KLCI is unable to close decisively above 1667 (200-d SMA) and monthly high of 1675 (19 July) levels, extended sideways consolidation is still in the cards.

• On the flip side, a decisive fall below 30-d SMA near 1650 this week will trigger further retracement to lower supports at 1639 (23.6% FR) and 1630 zones.

Market Strategy

• KLCI could still inch higher in the near term to test 1675- 1684 zones, driven by positives such as receding fears of immediate hike in US Fed rates, prospects of greater fiscal and monetary measures by key central banks and governments, and hopes of more stimulus measures by Malaysian government as well as policy easing by BNM to stimulate slowing economy.

• However, the ongoing oil price consolidation, the development from the 1MDB saga coupled with expectations of another lackluster Aug reporting season may cap strong upside ahead. Moreover, the recent credit ratings downgrade by Fitch on several GLCs will also add salt to wounded investors’ sentiment.

Source: Hong Leong Investment Bank Research - 2 Aug 2016