Market review

• The MSCI Asia Pacific Index (MXAP) ended flat (-0.05 pt to 138.1) as investors were bracing for the ongoing 3Q16 US reporting season and the final U.S. presidential debate set for 19 Oct, which could lead to heightened concerns about political risk. Meanwhile, U.S. economic data like CPI (18 Oct), housing starts (19 Oct) and leading indicators (21 Oct) figures will be eagerly anticipated for clues about the Fed’s interest rate policy.

• Tracking profit taking on crude oil and investors toned down expectations of the upcoming Budget 2017 (on 21 Oct) as the Government adopting a prudent fiscal policy, KLCI fell for the 4th straight session to end 5.3 pts lower at 1653.7.

• The Dow ended 52 pts lower at 18066 as sentiment was hurt by lower energy stocks along with oil prices. Market was also affected by the conflicting statements on the timing of a rate hike from some Fed officials, on top of grappling with changing dynamics in a tumultuous U.S. presidential election and nervousness regarding third quarter earnings.

Technical view

Turning bearish after breaking the 100-d & 200-d SMA supports

• After breaking the key 200-d SMA (near 1666) last Friday and compounded by another fall below 100-d SMA (near 1658) yesterday, near term KLCI outlook has turned increasingly negative. Unless the index can swiftly reclaim above the 100-d & 200-d SMA support-turned-resistance level, we may see KLCI easing further to retest the 1640- 1645 levels soon. On the flip side, a decisive recovery above 1666 may lift the index to test higher targets at 1670-1675 levels.

Market outlook

• On the back of retreating oil prices and uncertainty ahead of the final U.S. presidential debate (19 Oct) and the toned-down expectations ahead of the tabling of Budget 2017 (21 Oct), KLCI is likely to lock in range bound consolidation mode within 1640-1670 levels this week.

• Trading idea. We recommend BPPLAS due to its undemanding P/E of 10.5x (ex-cash 10.5x) as well as supported by attractive yields of 5.2%. The stock is poised for a major triangle breakout soon. A decisive break above RM1.56 (downtrend line) will spur prices higher towards RM1.63-1.78 levels. Key supports are RM1.46-1.52. Cut loss at RM1.45

Source: Hong Leong Investment Bank Research - 18 Oct 2016