Market review

• The MSCI Asia Pac index eased 0.07% on profit taking after surging to 14 month high ahead of the ECB meeting outcome as the market is looking for fresh catalysts that may come in the form of additional stimulus from the ECB or BOJ while awaiting data on industrial output, fixedasset investments and retail sales from China next week.

• Tracking a mixed regional markets, KLCI inched up 1.8 pts on selective buying interests in blue chips with the index traded within a range of 5.8 pts between an intraday high of 1692.1 and a low of 1686.4. Trading volume increased 8% to 1.693bn shares worth RM1.577bn, supported by positive market breadth with 402 gainers as compared to 374 losers.

• The Dow fell 46 pts to record its 2nd straight decline as investors disappointed after the ECB refrained from announcing additional measures to boost Europe’s sluggish economy. Investors viewed that the ECB’s inaction so far has been a blow to risk appetite and may give the Fed more room for tighter monetary policy at a later stage this year. Meanwhile, Brent oil prices rallied 3.8% amid falling inventories and news that Saudi Arabia said that its oil production dropped by 40,000 barrels a day in August. Still likely to test 1700 in the short term as technicals are on the mend

• Technically, we remain optimistic that the KLCI steady rebound from weekly low of 1667 on 5 Sep to end at 1691.4 yesterday will eventually break above 1700 psychological barrier after decisively reclaiming above the support trendline near 1681, supported by upticks in indicators. On the flip side, a breakdown below 1681 will witness the index to retrace back towards 1656-1665 support zones.

Market Strategy

• In view of long holidays next week (Bursa will be closed on 12 Sep Hari Raya Haji and 16 Sep Malaysia Day), market is expected to remain quiet today but with an upside bias on the back of overnight rally in oil prices and improving KLCI technical picture as well as growing expectations that the Fed will keep a lid on interest rate hike in Sep.

• Overall market sentiment is on the mend as investors have walked past a lackluster 2Q16 earnings cycle to focus on positive expectations from a widely perceived “election-friendly” Budget 2017 (on 21 Oct) as well as expectations that 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.

Source: Hong Leong Investment Bank Research - 9 Sep 2016