Market review

• The MSCI Asia Pacific Index (MXAP) ended up 1.25 pts to 139.36 as mixed U.S. economic data spurred optimism that the U.S. will keep monetary policy accommodative longer. The next focal point for the markets will be Chinese economic data on industrial production, retail sales and GDP today after a sluggish trade data last week, as well as the last U.S. presidential debate tonight.

• Tracking a technical rebound in regional markets and ahead of the widely focused Budget 2017 on Friday, KLCI recouped most of the losses with a 13.9-pt gain after falling 15 pts in the last 4 sessions, driven by bargain hunting activities on recently bashed down blue chips such as AXIATA (+13 sen to RM5.22), MAYBANK (+11 sen to RM7.71), SIME (+15 sen to RM7.90), GENTING (+17 sen to RM7.99) and CIMB (+7 sen to RM4.84).

• The Dow gained as much as 139 pts in the early session amid positive results from Goldman Sachs, UnitedHealth and Netflix coupled with only a mild increase in core CPI. However, the gains were capped to 75 pts, weighed down by poor results from IBM, changing dynamics in a tumultuous U.S. presidential election and conflicting statements on the timing of a rate hike from some Fed officials.

Technical view

Cautious sentiment prevails despite yesterday’s sharp rebound

• Despite yesterday sharp rebound, we reiterate our view that KLCI must consistently stay above the key 100-d & 200-d SMA support-turned-resistance levels and support trendline for a resumption to retest 1684-1700 zones. Falling below 1652 (18 Oct low) again will aggravate further selling pressures towards 1622-1645 levels.

Market outlook

• Although KLCI may be building up positive momentum ahead of the Budget 2017, KLCI is likely to lock in range bound consolidation mode within 1640-1675 levels this week, mainly driven by the external factors such as the oil prices movement, the final U.S. presidential debate tonight and the key Chinese economic data on industrial production, retail sales and GDP today.

• Closed position. We had closed our sell rating call onGENM (2.9% gain) yesterday.

• Trading idea. We recommend JTIASA due to its undemanding P/E of 10.5x (peers 15.4x) and 0.72x P/B (peers 1.55x), supported by robust FY16-18 earnings CAGR of 40%. Following the cup & handle formation, JTIASA is poised for a run-up towards RM1.43-1.65. Key supports are RM1.27-1.31. Cut loss at RM1.25

Source: Hong Leong Investment Bank Research - 19 Oct 2016