Market review

• Led by a 3.2% rally in Nikkei 225, the MSCI Asia Pac index rose for the 4th day (+1.9% to 141.35) after the BOJ said it would overhaul its monetary policy framework via keeping key rate unchanged at -0.1% and introduced a new policy of targeting the yield curve. The decision sparked buying particularly in the financial sector, as concerns the BOJ would cut rates deeper into negative territory (which would hit bank profits) eased.

• Tracking regional rebound, KLCI rose for a 2nd day with a 2.95 pts gain to 1658.7 after hovering within a tight range of 6.48 pts between an intra-day high of 1659.2 and a low of 1652.7. Overall sentiment improved as market breadth was positive with 460 gainers as compared to 329 losers, supported by a 22% and 11% growth in trading volume and value to 1.71bn shares worth RM1.88bn, respectively.

• The Dow jumped 163 pts, driven by a rally in energy shares as WTI prices surged 4.8% following higher-than-expected drop in US supplies. Sentiment was also boosted after Fed kept rates unchanged and said that overall health of US economy is positive, with the case for an increase has strengthened. Officials also scaled back expectations for hikes in 2017 and over the longer run. Policy makers see two rate hikes next year, down from their June median projection of three.

Technical view Relief rally to continue

• Following a 2-day rebound and improving technical indicators, KLCI immediate outlook has turned rosier as the index aims to record its 3rd straight gain today. The index is likely to test 1664 (support-turned-resistance) and a strong close above 1664 will spur index higher towards 1670-1678 next. On the flip side, a decisive fall below 1645 (20 Sep low) will witness KLCI to correct further towards 1611-1622 zones.

Market Strategy

• In tandem with overnight positive performance from Wall St and a rally in Brent oil prices coupled with more clarity in BOJ/FOMC policy statements, KLCI is expected to continue its relief rally in the near term.

• Stock on radar. We recommend FIAMMA (Trading Buy) following a bullish downtrend line breakout lately. A decisive breakout above RM0.59 will spur prices higher towards RM0.615-0.66 zones. On the flip side, key supports are RM0.55 and RM0.545. Cut loss at RM0.54.

Source: Hong Leong Investment Bank Research - 22 Sep 2016