Market review

• After tumbling 1.1% last Friday, Asian stocks rebounded with the MSCI AC Asia Pacific Index (MXAP) index gaining 0.6% to 140.56 as worries over the health of European banks eased as AFP reported Deutsche Bank AG (DB) is near a US$5.4bn deal with the U.S. Department of Justice, less than half the initial amount requested to settle a probe related to bad mortgages. Meanwhile, sentiment was also boosted by steady climb of China’s official manufacturing and services data.

• Ahead of the long weekend holiday on 3 Oct (Awal Muharram), KLCI slid 17.1 to close at day low of 1652.6, spooked by a fake bomb scare in the Bursa Malaysia’s building and contagion fears on DB amid capital adequacy concern. Following the slump, KLCI fell 1.1% wow, 1.5% mom and 0.09% qoq, respectively.

• Ahead of the crucial US Sep payrolls data (7 Oct) and 3Q16 reporting season (next week), Dow fell as much as 104 pts intraday following news that UK PM would trigger the process of leaving the EU by the end of Mar 17. Sentiment was also dampened by data showing expansion in U.S. manufacturing bolstered wagers that the Fed will raise interest rates this year. However, the loss was pared to 54 pts amid news that there appeared a possibility of a penalty settlement between the DB and U.S. Department of Justice.

Technical view

• Key support near 1645 to prevent further selloff

• The unexpected slid on KLCI last Friday has clouded the near term recovery outlook as the index was closed below multiple key 10-d/100-d/200-d SMAs and 38.2% FR supports. Failure to defend the next crucial support of 1645 will trigger a selldown towards 1622-1640 levels. Weekly resistances are situated at 1657 (38.2% FR), 1665 (200-d SM) and 1670 (50% FR).

Market Strategy

• Given the sustainable rebound in oil prices and tapering fears of further systemic risk of DB and mild recovery in RM (vs US$), we expect KLCI to stage a technical rebound this week to retest 1665-1670 levels. Key supports remain at 1640-1645 levels, which are cushioned by potential pre-Budget rally and the readiness of BNM to support economic growth via easing.

• Stock on radar. We recommend AWC (Trading Buy) today due to its strong earnings visibility (with RM1.2bn orderbook), undemanding valuation and decent DY. The stock is poised for a triangle breakout soon, with upside targets at RM0.87-0.91. Key supports are RM0.75-0.77. Cut loss below RM0.735.

Source: Hong Leong Investment Bank Research - 4 Oct 2016