Market review

• The MSCI Asia Pacific Index (MAPX) inched up 0.29-pt to 141.29, thanks to an extended gain in Dow and rally in oil prices following an unexpected agreement by OPEC to cut production pushed up a regional gauge of energy shares. However, sentiment remained nervy as the weak Europe markets amid growing concern that Deutsche Bank AG’s woes will spread to the global financial sectors.

• Tracking higher regional markets and rebound in oil prices coupled with expectation of 3Q16 window dressing, KLCI gained 4.7 pts, spurred by selected buying interests of blue chips such as Maybank (+10 sen to RM7.62), Sime (+12 sen to RM7.77), Pchem (9 sen to RM6.69), Axiata (+5 sen to RM5.42) and SKPetro (7 sen to RM1.57).

• After a 2-day gain of 245 pts, the Dow surrendered back 196 pts overnight at 18143, buffeted by concerns about the health of Deutsche Bank AG’s balance sheet, specifically its ability to withstand a potential US$14bn fine from the U.S. Justice Department. Meanwhile, a rout in healthcare shares also dampened sentiment amid concern that a Hillary Clinton presidency would tighten regulations on the industry and hurt profits.

Technical view

• Must trend above 200-d SMA to sustain gains

• The KLCI is still locked within a tight range bound consolidation mode within 1645-1670 levels in the last two weeks. We expect the underlying cautious tone to prevail given the lack of strong local catalyst (except the highly anticipated Budget 2017) and choppy external markets. Only a decisive break below key support trendline of 1657 will trigger a pullback again towards 1645 levels. Immediate upside targets remain at 1676-1684.

Market Strategy

• Given the pullback in Dow amid heightened concern over Deutsche Bank AG crisis and Bursa Malaysia’s extended long weekend holiday on 3 Oct (Awal Muharram), the local market sentiment is expected to remain muted. However, any sharp fall will be cushioned by potential 3Q16 window dressing activities and pre-Budget rally coupled with the readiness of BNM to support economic growth via easing.

Source: Hong Leong Investment Bank Research - 30 Sep 2016