Market review

• The MSCI Asia Pac index jumped 1.26% to 139.9 (the highest in 13 months) after weaker-than-expected payrolls data in the world’s biggest economy tempered speculation that the Fed may raise interest rates as soon as September. Sentiment was also driven by improving China Au Caixin PMI services data and BOJ’s Haruhiko Kuroda remark that the central bank still had "ample room for further monetary easing" and rejected market views that monetary policy had reached its limits.

• Tracking regional markets and a rebound in oil prices, KLCI rose 6.3 pts to 1678.1 after traded within a range of 12.3 pts between an intra-day high of 1679.6 and a low of 1667.3. Market breadth was positive with 423 gainers as compared to 379 losers.

• Wall St was closed overnight due to Labour Day holiday. Last week, the Dow rose 0.5% following a sluggish Aug ISM manufacturing index and lower-than-expected US jobs data hei ghtened expectations the Fed won’t raise interest rates later this month. Meanwhile, Brent oil prices rallied 1.7% after Russia and Saudi Arabia agreed to form a working group to monitor the oil market and come up with recommendations to promote stability. Follow through technical rebound

• Following a 2-day technical rebound and successfully reclaims above the support trendline near 1675, KLCI’s technical outlook has improved following a bullish engulfing candlestick formation. Key resistances are situated at 1684 (61.8% FR) and 1700. On the flip side, key supports are 1675, 1670 (50% FR) and 1665 (200-d SMA).

Market Strategy

• On the back of a rebound in Brent oil prices and bets of a delayed 2nd Fed rate hike, KLCI may experience followthrough technical rebound today.

• Portfolio. We had closed our position on KFIMA (1.1% gain) yesterday amid expiry.

• Stock on radar. We recommend VS (Trading Buy) as we see limited severe downside risks from here, supported by its bullish earnings prospects and cheap valuations coupled with grossly oversold hourly readings. Key upside targets are RM1.41-1.56 while supports fall on RM1.26-1.30. Cut loss at RM1.25.

Source: Hong Leong Investment Bank Research - 6 Sep 2016