Market review

• NIKKEI 225 rallied 2.3% rallied as yen weakened and the Bank of Japan’s governor vowed to add stimulus. Ex - Nikkei, Asian bourses ended mixed after Fed’s Chai r Janet Yellen said the case for raising interest rates is getting stronger.

• Mirroring regional markets, KLCI eased 1.5 pts to 1681.6 amid weakening RM, led by losses in ASTRO (-4 sen to RM2.88), MAYBANK (-10 sen to RM7.90), BAT (-62 sen to RM49.76), TENAGA (-12 sen to RM14.78) and MAXIS (-5 sen to RM6.33). Market breadth was negative with 314 gainers as compared to 513 losers.

• Dow rebounded 108 pts, snapping a 3-day decline following a stronger-than-expected July consumer spending. The greater chance of a rate rise delivered a boost to bank shares, which tend to benefit the most in the face of higher interest rates after Janet Yellen said the case for a hike is getting stronger. Monthly jobs data on Friday will be keenly watched as it may provide more clues as to whether policy makers have room to launch its 2nd liftoff since Dec 15. Volatility ahead

• KLCI was traded in a tight range bound trading band of 7.5 pts between an intra-day high of 1685.2 and a low of 1677.7 yesterday. We expect similar pattern to continue in a l ackluster session today ahead of the “Hari Merdeka” holiday tomorrow.

• We reiterate our view that KLCI will remain in consolidation mode unless it can reclaim above the 1688 (10-d SMA) decisively 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

• KLCI may inch up today in the wake of an overnight rally in Dow. However, the “Hari Merdeka” holiday tomorrow and the concern of higher probability of a 2nd Fed rate hike in Sep may cap any rebound near 1688 levels.

• Stock on radar. We recommend TNLOGIS (Trading Buy) as we expect share price (after a 13% slid) to gain buying momentum in the near term amid the formation of hammer candlestick and divergence signals coupled with the bottoming hourly chart. Key upside targets are RM1.57-1.74 while supports fall on RM1.42-1.47. Cut loss at RM1.40.

Source: Hong Leong Investment Bank Research - 30 Aug 2016