Market review

• The MSCI Asia Pacific Index slid 0.44% to 138.35 (-0.55% wow) as investors scaled down risk before a speech by Yellen on 26 Aug evening. WoW, the gauge eased 0.55% wow after rising in the last two weeks.

• Bucking regional markets, KLCI dropped as much as 6.4 pts to 1673.9 before inching up 2.8 pts at 1683.1 amid bargaining hunting on selected bluechips such as SKPETRO (+4 sen to RM1.64), GENM (+10 sen to RM4.40), MAYBANK (+10 sen to RM8.00), TENAGA (+16 sen to RM14.90) and BAT (+54 sen to RM50.38). WoW, KLCI recorded its 1st loss of 0.3% after registering its 3rd straight weekly gains. Average daily volume and value shrank 33% and 17% to 1.77bn shares valued at RM1.65bn, respectively.

• Last Friday, Dow lost 53 pts and recorded a weekly loss of 1% following Yellen speech amid a chorus arguing the case for policy tightening as soon as September meeting (21 Sep). Expectations for a rate increase climbed after Fischer spoke, with traders pricing in a 42% probability of a move next month, from 32% end July. Odds are now nearly 63% the central bank will act by December, up from 36% end July. Overall, market will monitor closely the Aug jobs data on 2 Sep to gauge Fed’s next monetary move.

• Volatility ahead

• Extended profit taking pullback saw KLCI declining to intraday low at 1673 before inching up to end at 1683 last Friday, forming a positive white candlestick to signal potential floor could be near 1670 zones despite lackluster indicators.

• We reiterate our view that KLCI will still be trapped in consolidation mode unless it can strongly climb above 1688 (10-d SMA) for a resumption of rally towards 1700 and 1717 levels. Key supports remain at 1675 (resistance-turned-support of 19 July high), 1670 (50% FR) and 1665 (200-d SMA).

Market Strategy

• We expect ongoing consolidation mode to prevail amid growing voices of a possibility Fed rate hike in September as well as growing focus on the remaining Aug reporting season, given that a flurry of big caps results that could trigger volatility in a lackluster market.

• Stock on radar. We highlight TOMYPAK (Trading idea) following its 2Q16 results (within HLIB expectation) and signs of bottoming up after recent selldown.

Source: Hong Leong Investment Bank Research - 29 Aug 2016