Market review

• The MSCI Asia Pac index rose 0.25% to 142.17 (the highest since Jul 15) for the 3rd straight sessions following recent weak US ISM and jobs data raised speculation that patchy growth may prompt the Fed to keep rates lower for longer and will continue to be supportive of risky assets. Meanwhile, Nikkei 225 fell as much as 1% intraday before paring its losses to 0.4% as the yen strengthened.

• After rising 19.4 pts in three days, KLCI experience mild profit taking pullback as the index slid as much as 9.8 pts in the early sessions before paring its losses to end 0.3-pt lower to 1689.6. Market breadth was positive with 411 gainers as compared to 354 losers.

• Overnight, the Dow fell as much as 64 pts in the early session before reducing the losses at 12 pts after a report from the 12 Federal Reserve districts showing a modestly positive tone about the economy. Overall, the index was trapped in tight rangebound consolidation mode head of the key FOMC meeting on 21 Sep, with t raders paring their bets on a rate increase in Sep to 20% from 32% before US Aug jobs data last Friday.

• Still likely to test 1700 in the short term as technicals are on the mend

• We view that the KLCI steady rebound from intraday losses to end relatively unchanged yesterday was commendable. We remain cautiously opt imistic that the index will eventually break the 1700 psychological barrier soon after decisively reclaiming above the support trendline near 1681. On the flip side, a breakdown below 1681 will witness the index to retrace back towards 1656- 1665 support zones.

Market Strategy

• On the back of growing expectations that the Fed will keep a lid on interest rate hike in Sep, the market has walked past a lackluster 2Q16 earnings cycle to focus on upcoming Budget on 21 Oct coupled with the readiness of BNM to support economic growth via easing are overall positive for the market to test our KLCI short to medium term 1700-1717 upside targets.

• Portfolio (FIG4). We took profit on AJIYA (+9% gain) after share prices hitting above R2.

• Stock on radar. We recommend PRESBHD (Trading Buy) as we see share prices to break its downtrend line resistance near RM2.21 soon. Key upside targets are RM2.29-2.51 while supports fall on RM2.02-2.11. Cut loss at RM1.99.

Source: Hong Leong Investment Bank Research - 8 Sep 2016