Market review

• The MSCI Asia Pac index eased 0.15% to 139.12 (-0.6% wow) as investors were confused by mixed messages from the Fed, with hawkish comments from New York Fed President William Dudley and San Francisco Fed President John Williams clashing with the dovish tone of July FOMC minutes. Meanwhile, NIKKEI rose 0.36% and the USDJPY weakened 0.33% after BOJ said it will not rule out deepening a cut to negative rates.

• KLCI fell 7.2 pts last Friday, as sentiment was dampened by extended profit taking pullback and knee-jerk selldown of selected small & midcap stocks on rumours that SC had initiated investigation on allegations of stock manipulation. Despite the losses, KLCI was still up 3.5 pts wow to 1687.7, recording its 3rd consecutive weekly gains.

• The Dow edged down 45 pts (-0.1% wow) last Friday, as investors weighed prospects for an interest rate increase in the coming months. San Francisco Fed President John Williams (non-voting committee) was the latest to join the hawkish camp, saying that it could be costly for the economy i f Fed prolongs a rate hike and a possible rate hike in September should be in play. KLCI to mire in consolidation

• Given the weakeni ng daily indicators aft er last Friday’s decline coupled with toppish weekly slow stochastic reading, KLCI is poised to extend its near term consolidation with key supports at 1684 (61.8%), 1675 (resistance-turned-support of 19 July high) and 1665.

• Despite mi ring in near term consolidation, we remain positive KLCI to break the 1700 levels decisively after a brief consolidation amid bullish weekly MACD and RSI indicators. Higher targets are 1716 (100-w SMA), 1729 (YTD high) and 1739 (LT objective).

Market Strategy

• We expect KLCI to engage in a mild consolidation this week amid weakening daily indicators. Sentiment may turn more cautious as we embrace a flurry of big caps results in the two weeks during the ongoing Aug reporting season.

• On the external front, key focus is the global central bankers in Jackson Hole (25-27 Aug), where Janet Yellen may provide insight on the rate outlook, given that more and more Fed officials are supportive for imminent interest rate hike in coming months. Yesterday, Fed Vice Chairman Stanley Fischer signaled that a 2016 rate hike is still under consideration, saying the U.S. economy is already close to meeting the central bank’s goals

• Portfolio (FIG5). We took profit on HARBOUR (5% return) last Friday after share prices hit above R1.

Source: Hong Leong Investment Bank Research - 22 Aug 2016