Market review

• The MSCI Asia Pacific Index (MXAP) ended 0.77-pt lower to 137.9 (a 5th straight decline) following the release of a slightly dovish Sep FOMC minutes (which boosted expectations of a Dec rate hike) and a surprise decline in China’s exports. Sentiment was also jolted by weak opening in the European markets as investors grappled with the continent’s banking woes, stretching from Deutsche Bank AG’s to Italian banks being saddled with non-performing loans.

• Tracking weak regional markets and a poor performance of Ringgit, KLCI lost 2 pts to 1665 after traded within a range of 9.3 pts between an intra-day high of 1669.3 and a low of 1660.0. Trading volume increased to 1.76bn shares worth RM1.94bn as compared to Wednesday’s 1.60bn shares worth RM1.84bn amid focus on the lower liners and penny stocks while blue chips consolidated.

• The Dow ended 45 pts lower after plunging as much as 185 pts in the early sessions following sluggish China trade data and selldown in banking stocks amid the upheavals in Deutsche Bank AG’s and Wells Fargo. Overall, volatility will stay for a while during the ongoing 3Q16 reporting season and ahead of the key upcoming economic data due tonight i.e. retail sales, consumer sentiment and producer prices.

Technical view

Key resistances at 1670-1675 zones

• KLCI may continue to lock in a sideways mode with upside bias in the near term, targeting 1670-1675 levels 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 stronger upward momentum towards 1684-1700 levels. Failure to do so will witness KLCI to head lower back to 1645-1656 range territory.

Market outlook

• With the US Dec Fed rate hike probability largely priced in (Bloomberg poll: 65%), KLCI is likely to lock in range bound consolidation mode within 1645-1675 levels, awaiting major outcomes from the upcoming Budget 2017 (21 Oct) and the US Presidential election (8 Nov).

• Portfolio. We had closed our positions on ANNJOO (7.2% gain), TEKSENG (3.8% gain) and KSL (0%)yesterday.
• Trading idea: We recommend Take Profit on GENM due to its rich valuations and grossly overbought indicators coupled with the shooting star candlestick formation. Key upside targets are RM4.97-5.05 while downside targets are RM4.62-4.86.

Source: Hong Leong Investment Bank Research - 14 Oct 2016