Market review

• Last Friday, the MSCI Asia Pacific Index (MXAP) inched up 0.24-pt to 138.16 (wow -1.73%) after recorded a 5th straight decline following a higher-than-expected China CPI, signaled surprising economic strength in the world's second largest economy. However, sentiment remained cautious ahead of the Janet Yellen's speech at the Boston Fed Conference on how close the Fed is towards a second rate hike in December.

• Tracking profit taking on crude oil, China’s sluggish trade data and Singapore’s weakest GDP growth (since 2009), there were sparking fears of potential negative implications for Malaysia’s 2H16 economic outlook. KLCI lost 6.1 pts to 1659 and recorded a weekly decline of 6.4 pts.

• Sparked by better-than-expected banks earnings and retail sales, the Dow rallied as much as 160 pts in the early session. However, profit taking reduced the gains to only 39 pts as investors brace for the key upcoming results this week, which include Intel, Microsoft, GE, Johnson & Johnson and Bank of America. Yellen’s comments that the Fed might want to let inflation run hotter for a while also helped to sooth investors’ concern on the aggressiveness of Fed rate hike.

Technical view

Negative after breaking 200-d SMA support

• After breaking the key 200-d SMA support near 1666 last Friday, near term KLCI outlook may turn negative. Unless the index can swiftly reclaim above the 200-d SMA support-turned-resistance level, we may see KLCI to ease further to retest the 1640-1645 this week. A decisive breakout above may lift the index to test higher targets at 1670-1675 levels.

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 1640-1670 levels this week, awaiting major outcomes from the upcoming Budget 2017 (21 Oct) and the US Presidential election (8 Nov).

• Portfolio. We took profit on AWC (6.4% gain) Friday after hitting our R1 target

Source: Hong Leong Investment Bank Research - 17 Oct 2016