Market review

• The MSCI Asia Pacific Index (MXAP) rose for the 2nd straight day with a 0.66-pt gain to 140, boosted by a resilient China 3Q16 GDP. Sentiment was also helped by the recent mixed U.S. economic data and slightly dovish tones by Yellen and Fischer, which spurred optimism that the U.S. will keep monetary policy accommodative longer.

• Tracking higher regional markets and oil prices, KLCI inched up 0.7-pt to 1668.3 after trading within a tight range of 6 pts between an intra-day high of 1671 and a low of 1664.9. Ahead of the widely-anticipated Budget 2017 on 21 Oct, trading volume and value shrank 11% and 15% to 1.39bn shares worth RM1.58bn. Market breadth was negative with 373 gainers as compared to 403 losers.

• The Dow gained as much as 90 pts in the early session as sentiment was boosted by strong results from Morgan Stanley, positive outlook by Beige book report on U.S. economy (late Aug-early Oct) and higher energy shares amid a rally in oil price (15-month high) following lower U.S. crude inventories and many nations are reportedly willing to join OPEC production cuts. However, the gains were reduced to 40 pts ahead of the final presidential debate this morning.

Technical view

Cautious sentiment prevails despite yesterday’s sharp rebound

• Technically, only a decisive break above immediate resistance of 1675 (19 July high) will trigger a resumption of rally to retest the 1684 (61.8% FR) and 1700 psychological barriers. Failure to do so will witness KLCI trapped sideways in consolidation mode with key supports at 1657 (38.2% FR) and 1645 (20 Sep low).

Market outlook

• On the back of overnight gains in Wall St and a rally in oil price, KLCI may continue to rise further today but we see near term resistance levels at 1675, pending the outcome from the tabling of Budget 2017 tomorrow.

• Trading idea (separate report). With its transformation plan starting to show tangible results, we recommend KUB due to its undemanding 0.82x P/B, about 18% below its 10-year average of 1x, supported by a 7sen netcash/share. An impending triangle breakout is likely to spur prices higher to test RM0.445-0.46 soon before heading towards LT objective at RM0.50. Key supports are RM0.395-0.41. Cut loss at RM0.385

Source: Hong Leong Investment Bank Research - 20 Oct 2016