Market review

• The MSCI Asia Pacific Index (MXAP) ended 1.06 pts lower to 138.7 (recorded a 4th straight decline), as sentiment was affected by overnight losses in Dow and oil prices. Sentiment was also cautious ahead of the release of US Sep FOMC meeting minutes for more clarity of the Fed rate hike path timeline as investors are uncomfortable about the prospect of rising interest rates amid moderate profit growth and relatively high valuations.

• Tracking the weak regional markets and easing oil prices, KLCI lost 1.7 pts to 1667 after traded within a tight range of 4.6 pts between an intra-day high of 1668.3 and a low of 1663.8. Market breadth was negative with 355 gainers as compared to 398 losers.

• After sliding 200 pts on 11 Oct, the Dow struggled for direction before inching up 15 pts higher overnight. Overall, sentiment remained cautious as investors braced for the ongoing 3Q16 reporting season after Alcoa delivered a set of sluggish results. Meanwhile, as widely expected, the Sep FOMC minutes showed support for a rate rise relatively soon but implied a go-slow approach. As a result, treasuries eased lower and yield gained 0.01% to 1.77%.

Technical view

Key resistances at 1670-1675 zones

• KLCI may trend sideways but with an upward bias this week to test our weekly envisaged 1670-1675 resistances as the index continues to hover above the 100-d and 200- d SMAs as well as support trendline from 1612 levels. However, the index must stage a strong breakout above these levels for a resumption of uptrend toward 1684- 1700 levels. Failure to do so will witness KLCI to trap in range bound consolidation within 1645-1675 territory.

Market outlook

• With the US Dec Fed rate hike probability largely priced in (Bloomberg poll: 68%), KLCI is likely to lock in range bound consolidation mode within 1645-1675 levels ahead of the outcomes from the upcoming Budget 2017 (21 Oct), US Presidential election (8 Nov) and the OPEC meeting (end Nov).

• Trading idea: We recommend TRC due to its undemanding valuation at 8.6x FY17 P/E (42% below its smallcap peers) and 0.56x P/B (35% below its 10-year average of 0.86x), supported by strong earnings CAGR of 23% from FY16-18, outstanding orderbook in excess of RM1.1bn and recent positive triangle breakout. A decisive breakout above RM0.44 will drive prices higher toward RM0.465-0.50 soon. Supports are RM0.40-0.405. Cut loss at RM0.39

Source: Hong Leong Investment Bank Research - 13 Oct 2016