Market review

• The MSCI Asia Pac index fell 0.3% (from as much as +0.7%) to 137.2 following a slump in oil prices as the IEA said the glut will persist into late 2017. Sentiment was also cautious ahead of the FOMC meeting on 20-21 Sep as investors assessed the F ed’s policy outlook amid recent opposing remarks from Fed officials.

• Tracking fragile sentiment in regional markets, KLCI slid 9.3 pts (from -14 pts intraday) after returning from long weekend holidays, weighed down by AXIATA ( -16 sen to RM5.49), CIMB (-16 sen to RM4.74), RHBBANK ( -8 sen to RM4.85), SIME (-7 sen to RM7.79) and GENTING (-10 sen to RM7.84). Market breadth was negative with 206 gainers as compared to 637 losers.

• The Dow’s downtrend res umed (-258 pts) overnight after rebounding 240 pts on 12 Sep amid a 2.7% decline in WTI prices to US45/barrel after the IEA predicted that the supply glut will extend into 2017. Sentiment was edgy as investors calibrate expectations toward FOMC meeting next week amid concerns over the prospects of less global monetary stimulus and effectiveness over the ability of central banks to fuel economic and price growth.

Technical view

• Likely to extend downward consolidation as 1675 support looks fragile

• After hitting a high of 1701 (16 Aug) from 1611.9 (24 June), KLCI tumbled to a low of 1667 (5 Sep) before ending at 1677.2 on sideways consolidation. We expect the consolidation mode to prevail given the weakening indicators and fragile support of S1 near 1675 (19 Jul). A decisive breach will trigger more selling pressures towards lower supports at S2 1663 (8 Jun) and 1656 (38.2% FR).

• Key resistances remain at 1684 (61.8% FR and 1700.

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 subdued, which also coincides with a 1-week school holidays.

• Nevertheless, we still believe downside risks will be wellsupported (unless the Fed tightens unexpectedly on 21 Sep) near weekly support of 1656 as investors have walked past a lackluster 2Q16 earnings cycle to focus on positi ve expectations from a wi dely percei ved “election - fri endly” Budget 2017 (on 21 Oct) as well as expectations that the readiness of BNM to support economic growth via policy easing.

Source: Hong Leong Investment Bank Research - 14 Sep 2016