Market review

• The MSCI Asia Pacific Index (MXAP) rose 0.3-pt to 140 following stabilizing economic data from China. Sentiment was also boosted by better-than-expected Japan’s Market PMI manufacturing data and smaller-than-expected fall in exports.

• Tracking higher regional close and a generally well - received Budget 2017, KLCI jumped 7.8 pts to 1677.8, spurred by gains in MAXIS (+20 sen to RM6.20), GENM (+14 sen to RM4.85), PETGAS (+36 SEN TO rm22.10), RHBBANK (+13 sen to RM4.82) and MISC (+11 sen to RM7.61).

• The Dow rallied as much as 129 pts intraday following a flurry of deals spurred optimism in equity markets and slightly better-than-expected overall 3Q16 earnings reports (as 79% of the S&P 500 companies that have released their results topped estimates) coupled with a strong Oct Markit PMI data. However, the gains were reduced to 75 pts amid rising dollar (futures show a 70% chance of a rate hike by Dec from 66% a week ago) and profit taking pullback in oil prices.

Technical view

A convincing stay above 1675 will drive CI towards 1684-1700

• 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), 1692 and 1700 psychological barriers. Failure to do so will witness KLCI to continue engaging in sideways consolidation mode with key supports at 1657 (38.2% FR) and 1645 (20 Sep low).

Market outlook

• Overall, the mildly positive Budget 2017 and expectations of a better Malaysia 3Q16 GDP coupled expectations of a more stable 3Q16 results next month will augur well for the market towards 1684-1700 zones in the short term.

• Trading idea. We like Sendai amid its undemanding valuations and bullish orderbook that can supports earnings visibility for next two years. The downtrend resistance breakout in daily chart and the rounding bottom pattern in weekly chart could signal more upside ahead. A decisive close above RM0.535 will spur prices higher to RM0.55 before reaching our LT target at RM0.60. Major supports are near RM0.465-0.475. Cut loss at RM0.455.

Source: Hong Leong Investment Bank Research - 25 Oct 2016