Market review

• After plunging 2.3% last week, the MSCI Asia Pac index rose for a 2nd day with a 0.9% gain to 138.4 ahead of the widely focused BOJ (21 Sep) and Fed (22 Sep) policy meetings. Investors were split over what action the BOJ will undertake while bets on a potential rate hike from the Fed remain low at ~20% despite a higher-than-expected US inflation data last Friday.

• Following a 2% rout last week, KLCI jumped as much as 8.9 pts on technical rebound but all the gains were erased and the index eventually fell 1.3 pts to 1651.7. Overall, sentiment remained muted as investors await policy reviews from key central banks. Market breadth was negative with 333 gainers as compared to 444 losers while daily volume dropped 14% to 1.147bn shares.

• The Dow soared as much as 130 pts in the early session, lifted by a rebound in oil prices and a surge in home-builder confidence index. However, all the gains evaporated and the index fell 3 pts as skittishness returned ahead of the BOJ and FOMC policy reviews. Although the probability of a hike this week appears low, investors are more worried about a hawkish statement slated for a potential rate hike in Dec.

Technical view

• Oversold with key support near 1640

• Following last week’s rout, KLCI outlook has turned decisively bearish after breaching multiples key supports. Given the steeply oversold slow stochastic reading, we expect KLCI to find a floor near 1640 (23.6% FR) levels. If this support falters, KLCI will correct further towards 1600-1611 zones. Immediate resistances are 1664-1670.

Market Strategy

• Mirroring last week’s pattern, we expect selling pressure on Bursa Malaysia to prevail as investors await further clues from key central banks’ policy review. Sentiment will also be clouded by choppy oil prices, weakening RM and uncertainty ahead of the 8 Nov US presidential election following recent polls showed that Donald Trump (perceived as less market friendly) has led Hillary Clinton.

• Portfolio (FIG4). We had closed our position on HOMERIZ (1.1% loss) due to expiry and took profit on SENDAI (13.2% gain) after hitting above R2 target yesterday.

• Stock on radar. We recommend FLBHD (Trading Buy) as we believe the stock will play catch up with its peers (i.e. HEVEA/EVERGREEN). A decisive breach above resistance of RM1.60 could take the next leg up towards RM1.72-1.80 levels. Key supports are RM1.42-1.47. Cut loss at RM1.41.

Source: Hong Leong Investment Bank Research - 20 Sep 2016