Market review

• Ahead of the crucial US Sep payrolls data (7 Oct) and 3Q16 reporting season (next week), Asian markets ended marginally higher, with Nikkei 225 rose 0.85% as the yen weakened, after the stronger-than-expected US manufacturing data boosted optimism over the health of the world’s largest economy. Now, odds that the Fed will raise interest rates in December climbed to 61% from 51% a week earlier.

• After an extended holiday, KLCI reopened with a 8.7-pt hike yesterday, playing catch-up with the gains in Asian markets on 3 Oct amid rebounding oil prices and tapering fears of further systemic risk of Deutsche Bank woes.

• The Dow slid as much as 137 pts intraday before paring the losses to 85 pts following unidentified news that ECB may start to map their retreat from extraordinary stimulus. Sentiment was also dampened by hawkish comments from the Richmond Fed chief Jeffrey Lacker and Cleveland counterpart, Loretta Mester. Meanwhile, the 10-year U.S. yields jumped 6 bps to 1.69% with bets on a Dec rate hike spiked to 61% from 51% a week ago.

Technical view

• Building base near 1645

• Despite a 8.7-pt rebound yesterday, KLCI is still unable to reclaim above the critical 200-d SAM (1665) and 50-d SMA (1671) support-turned-resistance levels, clouded the near term recovery outlook. Technically, indicators are still pointing for short term KLCI range bound consolidation with key supports at 1639-1645 while resistances fall on 1671-1684 territory.

Market Strategy

• Despite overnight Dow’s fall, we still expect KLCI to stage a technical rebound this week, despite nagging uncertainty over the Fed rate hike and potential weakening in RM (vs USD). Key supports remain at 1640-1645 levels, which are cushioned by firmer oil prices, potential pre-Budget rally and the readiness of BNM to support economic growth via easing.

• Portfolio (FIG4): We took profit on JOHOTIN (7.1% gain) after share prices hit above our upside target at R1 yesterday.

• Stock on radar. We recommend MAYBANK (Trading Buy) today due to its undemanding valuation and attractive dividend yield. Given the bullish harami candle formation is near the tail-end of a downtrend channel and supported by uptick in daily indicators, we expect prices to breakout to the upside in the near term. Key resistances are RM7.77-8.22 while supports fall on RM7.25-7.49. Cut loss at RM7.23.

Source: Hong Leong Investment Bank Research - 5 Oct 2016