Market review

• After rising three days in a row, the MSCI Asia Pacific Index (MXAP) eased 0.47-pt to 139.71 (but still ended up 1.55 pts or 1.12% wow) following higher-than-expected Sep property prices’ gain in China, prompted fears of a market bubble in the country. Sentiment was also dampened by news that a typhoon which shut down the Hong Kong market and caused casualties and destruction in the Philippines as well as an earthquake of the magnitude of 6.6 that struck Western Japan.

• Despite lower regional markets and sharp pullback in oil prices, KLCI inched up 2.8 pts during the final trading hour following the tabling of Budget 2017, lifted by gains in CIMB (+11 sen to RM5.04), MAYBANK (+9 sen to RM7.69), KLK (+44 sen to RM24.36), BAT (+130 sen to RM49.80) and PCHEM (+3 sen to RM6.98). The positive close drove KLCI to end last week 12 pts or 0.7% higher.

• The Dow tumbled as much as 112 pts following the release of disappointing earnings outlook from GE and AMD. However, the losses were reduced to only 16 pts as better-than-expected earnings from Microsoft and McDonald’s coupled with multibillions M&A deals from BAT/Reynold and AT&T/Time Warner boosted investors’ sentiment. WoW, Dow inched up 7 pts to 18145 as investors dissecting the ongoing mixed reporting season, prospects of a rate increase by the Fed and tumult wrought by the U.S. presidential election.

Technical view

Still sideways unless can break above 1675-1684

• 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 to engage in sideways consolidation mode with key supports at 1657 (38.2% FR) and 1645 (20 Sep low).

Market outlook

• Overall, we believe Budget 2017 is mildly positive (especially for the small/mid cap stocks following the RM3bn funds to invest) for the market given broader positive impact against limited negative shocks (i.e. TM), which would eventually to lift KLCI 2017 earnings to grow 9.5% after recording a 3 consecutive yearly decline

Source: Hong Leong Investment Bank Research - 24 Oct 2016