Market review

• The MSCI Asia Pac index tumbled 1.93% to 137.63 (3rd straight losses) after surging to 14 month high on 7 Sep as ECB officials signaled a reluctance to extend stimulus (8 Sep) and the Boston’s Fed President Eric Rosengren (a voting member) said the economy could overheat i f they waited too long to raise interest rates. Meanwhile, equity markets in Singapore, Indonesia, the Philippines and Malaysia are among those closed for Hari Raya Haji holidays on 12 Sep.

• Mirroring overnight losses in Wall Street and regional markets and ahead of the long weekend holidays, KLCI lost 4.9 pts, mirroring overnight losses in Wall Street and regional markets. Despite the losses, KLCI managed to secure a weekly gain of 14.7 pts or 0.9% after recording a two consecutive weekly losses.

• The Dow rallied 240 pts (recovered bulk of the 394 pts loss on 9 Sep) after Lael Brainard (a permanent FOMC voting member) stuck to her dovish stance on interest rates and urged caution about removing monetary stimulus too quickly. Brainard's speech followed earlier comments by Atlanta Fed’s President Dennis Lockhart and Minneapolis counterpart Neel Kashkari in which they suggested there was no urgency to raise Fed rates. Immediate support at 1675 to prevent further selldown towards 1656-1664 levels

• Technically, we remain optimistic that the KLCI steady rebound from 2M low of 1648 (3 Aug) to end at 1686.4 on 9 Sep (still trading above key SMAs) will eventually witness the index to break above 1700 psychological barrier in the near term. On the flip side, a breakdown below 1675 will witness potential retracements back towards 1656-1664 support zones.

Market Strategy

• Ahead of the holiday-shortened week (will close on 16 Sep for Malaysia Day) and crucial FOMC meeting on 20- 21 Sep, market is expected to remain choppy, which also coincides with a 1-week school holidays. In spite of wild swings in global markets and potential KLCI consolidation this week (mai nly due to the timing conc ern of F ed’s tightening), we still believe downside risks will be well - supported (unless the Fed tightens unexpectedly on 21 Sep) as investors have walked past a lackluster 2Q16 earnings cycle to focus on positive expectations from a widely percei ved “el ection-fri endly” Budget 2017 (on 21 Oct) as well as expectations that the readiness of BNM to support economic growth via policy easing.

• Portfolio (FIG4). We had closed our position on OCK (2.5% return) last Friday amid expiry

Source: Hong Leong Investment Bank Research - 13 Sep 2016