Market review

• The MSCI Asia Pacific Index surged 0.8% to 138.6, taking cues from rallies in energy and commodity related stocks and mild inflation data in China, which boosted stimulus hopes.

• Tracking regional markets gain, KLCI rose to our envisaged 1675 target yesterday but profit taking saw the index closing in red (-1 pt to 1671.7) after soaring 24 pts in three straight sessions. Market breadth was positive with 405 gainers as compared to 360 losers, with focus stayed on lower liners and penny stocks while blue chips consolidate.

• The Dow gained as much as 55 pts in the early session but slower-than-expected 2Q productivity report and retracing oil prices capped the gains to only 4 pts at 18533 (0.3% below the all-time closing high of 18595 on 20 July). Meanwhile, bonds rallied with gold, while U.S. stocks held near a record amid signs global policy makers will keep a lid on interest rates due to uneven economic growth.

Technical Insights

• Poised to break 3-month high of 1675

• We remain optimistic that KLCI will break 3M high of 1675 in the near term, following a decisive breakout above 100- d/200-d SMAs and downtrend line last week coupled with upticks in indicators.

• A convincing breakout above 3-month high of 1675 (19 July) will spur KLCI higher towards 1684 (61.8% FR) and 1700 targets. However, the ongoing rebound will be disrupted i f the index retraces below the 1667 levels (resistance-turned-support of 200-SMA) again. Lower supports are 1656 (30-d SMA) and 1648 (50-d SMA).

Market Strategy

• KLCI is likely to stay sideways but with an upside bias to break 1675 soon, as sentiment is boosted by stimulus measures and accommodative policies of cent ral banks and government to spur flagging economy. However, further strong upside may be capped, given the nagging concern in China economy, lack of fresh local re-rating catalysts and the ongoing Aug reporting season.

• Stock on radar (separate report). Today, we highlight DUFU (Trading Buy) for potential upside to test short term target at RM0.70 (LT target: RM0.80) following a bullish flag breakout yesterday. Supports are RM0.60- 0.615. Cut loss at RM0.59.

Source: Hong Leong Investment Bank Research - 10 Aug 2016