Market review

• Asian stocks outside Japan rose as Chinese shares climbed to the highest since January on optimism details of a trading link between Shenzhen and Hong Kong will soon be announced. Sentiment was also boosted by higher resource-based stocks due to rebound in oil prices and hopes that weaker-than-expected China and Japan economic data and cooling inflation would spur further policy easing.

• Tracking higher regional markets and a rebound in the “Twin” crude oil and palm oil prices, KLCI jumped 6.2 pts to record its 7th gains in the last 8 sessions, led by strong gains in SKPETRO (+7 sen to RM1.57), TENAGA (+24 sen to RM14.76), SIME (+10 sen to RM8.09), AXIATA (+5 sen to RM5.80) and CIMB (+4 sen to RM4.66).

• The Dow, S&P and Nasdaq indices all closed at record highs overnight for the 2nd time since 1999, thanks in part to a sharp uptick in oil prices, which boosted energy and materials shares. Sentiment was also boosted by recent better-than-expected earnings season, expectations that the Fed will be in no rush to raise interest rates this year as well as due to lack of investment alternatives amid escalating bond prices and low yields.

Technical Insights

• Upbeat mood to break 1700

• 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

• We remain upbeat of KLCI testing 1700 psychological levels soon, 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 rebound in the “Twin” crude oil and palm oil prices coupled with record highs in Wall St . However, index may witness some mild sideways consolidation above 1700 during this ongoing Aug reporting season, given the overbought daily slow stochastic indicator.

• Stock on radar (separate report). Today, we highlight IBHD (Trading Buy) for a more meaningful medium to LT uptrend following “double” roundi ng bottom formations. Key upside targets are RM0.57-0.64 whilst supports fall on RM0.515-0.525. Cut loss at RM0.505.

Source: Hong Leong Investment Bank Research - 16 Aug 2016