Market review

• Asian stock markets were mixed on Wednesday, as the dollar climbed after hawkish comments from Fed officials and unidentified sources that the ECB might taper bond purchases before end Mar 2017. Bucking mixed regional markets, the Nikkei 225 jumped 0.5% amid a rally in exporters, bolstered by a weaker yen.

• After falling 18 pts last week, KLCI recorded a 2nd day rebound as sentiment was boosted by firmer oil prices and bargain hunting on selected FBM30 stocks such as SIME (+20 sen to RM7.81), MAYBANK (+7 sen to RM7.65), IHH (+5 sen to RM6.50), AXIATA (+3 sen to RM5.28), CIMB (+3sen to RM4.79) and SKPETRO (+2 sen to RM1.63).

• After a 2-day decline of 140 pts, the Dow gained 113 pts to 18281, driven by a rally in energy stocks as oil prices surged 1.95% after US stockpiles decline for the 5th straight week. Sentiment was also helped by better-than-expected economic reports such ISM manufacturing and services data as well as motor vehicles sales, overshadowed the angst of a looming Fed rate hike in Dec and possible withdrawal of ECB’s QE before the Mar 2017 deadline.

Technical view

• Potential downtrend reversal amid harami pattern

• Following a 2nd day rebound after last week’s slump, KLCI’s immediate outlook has turned slightly positive amid the harami pattern formation, signaling potential downtrend reversal. However, for a sustainable rebound, KLCI must reclaim above the 200-d SMA (1665) and 1671 (50% FR) support-turned-resistance levels. Failure to do so will witness KLCI to continue engaging in range bound consolidation within 1640-1670 band.

Market Strategy

• In the wake of overnight Dow’s rebound and rally in oil prices, we expect KLCI to continue its technical rebound today. Despite nagging uncertainty over the Fed rate hike and potential RM weakening (vs USD) in the short term, sentiment is likely to be supported by positive expectations of Budget 2017 and the readiness of BNM to support economic growth via easing.

• Portfolio (FIG4): We closed our position on GPACKET (4.1% loss) yesterday amid weakening technicals.

• Stock on radar. We recommend WCT (Trading Buy) today due to its undemanding valuation and decent yield, supported by huge orderbook of RM3.8bn and an unbilled property sales of RM529m coupled with its ongoing de-gearing exercise. Given the bullish downtrend line breakout, we expect prices to trend higher towards RM1.76-1.93 in the near term while supports fall on RM1.58-1.62. Cut loss at RM1.56.

Source: Hong Leong Investment Bank Research - 6 Oct 2016