Market review

• After rallying 9.7% to 11M high at 137.39 (1 Aug) from Brexit low of 125.23 (24 June), the MSCI Asia Pacific continued its profit taking pullback as it tumbled 1.9% to 134.3, foll owi ng investors’ disappointment over Japan’s much-hyped stimulus package and sliding oil prices. Sentiment was also weighed down by concerns over the health of European banks.

• In line with lower regional markets and weakening Ringgit/US$ (fell 0.6% to 4.057 following a slump in oil prices), KLCI lost 11.7 pts to 1648.52. Sentiment was also clouded by knee-jerk selloff in banking stocks such MAYBANK (-12 sen to RM7.86), PBBANK (-22 sen to RM19.58), RHBBANK (-14 sen to RM4.80), AMMB (-9 sen to RM4.33) and CIMB (-5 sen to RM4.36) amid news that MAYBANK and RHBBANK may need to fork out provisioning for thei r exposures to distressed Singapore oilfield services fi rm Swiber which is seeking to operate under judicial management.

• Ahead of the widely-focused July jobs report on Friday, the Dow snapped its 7th losing streak to end 41 pts higher following a rebound in oil prices (amid falling weekly inventories) and better-than-expected ADP payroll, offsetting a slower-than-expected PMl services data.

Technical Insights

• Extended consolidation following multiple SMA supports breakdown

• After tumbling 16.7 pts in two days, KLCI finally closed below the 1650 psychological support, as well as the multiple SMAs supports of 10-d/20-d/30-d/100-d/200-d SMAs. Overall, the negative performance reinforces our view that the key index will continue to remain in consolidation mode for a while, indicated by faltering indicators. Lower supports are 1645 (50-d SMA), 1639 (23.6% FR) and 1630 zones.

• Key obstacles remain near the 200-d SMA at 1667 and 1675 territory.

Market Strategy

• The overnight rebound in Dow and oil prices may provide a temporary lift to KLCI today but any rebound is likely to be short-live amid internal and external uncertainties.

• We reiterate our short term view that KLCI is likely to hover in range bound consolidation within 1639-1675 band, given the lack of fresh re-rating catalysts, ongoing Aug reporting season and low oil prices.

Source: Hong Leong Investment Bank Research - 4 Aug 2016