Market review

• The MSCI Asia Pac index jumped 0.66% to 12M high at 139.96 (+3.1% wow), propelled by Dow’s record closing and a relief rally in oil price. Sentiment was also boosted by hopes that weaker-than-expected Chinese economic data and cooling inflation would spur further policy easing.

• Tracking regional strength and a rebound in crude oil (+6.1% wow) and CPO prices (+4.9% wow), KLCI rose 5.4 pts to record its 6th gains in the last seven sessions. Market breadth was positive with 487 gainers as compared to 314 losers. WoW, KLCI surged 20.1 pts or 1.2% to 1684.2 after traded within 1665-1685 pts, in line with our envisaged 1666-1684 range.

• Following a record close on 11 Aug, the Dow eased 37 pts on profit taking. The USD index and 10-year gilt were also weighed down by slower-than-expected retail sales and consumer sentiment index coupled with PPI, added to speculation the Fed will be in no rush to raise interest rates this year. Meanwhile, WTI prices rallied 2.3% (+6.4% wow to US44.5) amid short-covering as well as speculation that OPEC will try to restrain output during an informal meeting in late Sep.

Technical Insights

• Positive LT downtrend line breakout

• The toppish daily slow stochastic indicator (FIG2) could signal potential profit taking correction this week if index continues to head towards our envisaged resistance at 1700 pts. However, the weekly downtrend line breakout may imply that any pullback should be shallow and well - absorbed, supported by bullish indicators (FIG3).

• Meanwhile, the ongoing rebound will be disrupted if the index retraces below the 1675 (resistance-turned-support of 19 July high) and 1666 levels (200-d SMA) again.

Market Strategy

• In anticipation of more stimulus-driven measures by global key central banks and government, the return of higher yield seeking funds into emerging markets and a rebound in oil and CPO prices, KLCI is likely to make an attempt to test 1700 this week. However, we see challenging task to exceed 1700 during this ongoing Aug reporting season, given the overbought daily slow stochastic indicator.

• Stock on radar (separate report). Today, we highlight HARBOUR (Trading Buy) for a resumption of upt rend after a flag breakout last week. Key upside targets are RM1.09-1.15 whilst supports fall on RM0.95-0.975. Cut loss at RM0.93.

Source: Hong Leong Investment Bank Research - 15 Aug 2016