Market review

• The MSCI Asia Pacific Index (MXAP) eased 0.5-pt to 139.9, as sentiment was dampened by overnight fall in Dow amid mixed forecasts from industry giants (i.e. 3M, Caterpillar, GM and Apple), sluggish consumer confidence data and falling oil prices.

• Tracking a mixed tone in regional markets and falling oil prices, KLCI eased 3.5 pts on profit taking after oscillating within a tight range of 5.2 pts between an intra-day high of 1677.5 and a low of 1672.4, in absence of catalysts post Budget 2017 announcement, Market breadth was negative with 285 gainers as compared to 496 losers.

• The Dow tumbled as much as 107 pts in the early session as investors grappled with falling oil prices and disappointing forecasts from behemoths including Apple, Intel and 3M. However, the index rebounded sharply to end 30 pts higher, thanks to a strong rebound in Boeing (a Dow component) as earnings topped estimates and positive economic data (i.e. Oct services PMI and new home sales).

Technical view

Must stay above 1675 to drive CI higher

• In the near term, KLCI may continue to be trapped in sideways consolidation mode as it is still unable to close decisively above immediate resistance of 1675 (19 July high). Key supports are 1666 (200-d SMA), 1661 (100-d SMA) and 1645 (20 Sep low). Only a sustainable close above 1675 will spur index to retest 1684 (61.8% FR), 1692 (8 Sep high) and 1700 psychological barriers.

Market outlook

• Overall, KLCI may continue to trade in tight range bound pattern for a while as investors await more clarity from 1-2 Nov FOMC meeting (8% chance of rate hike in Nov vs 80% in Dec) and the crucial US presidential election on 8 Nov. Once these uncertainties are removed (assuming no negative surprises as markets have priced in a Hillary victory), KLCI will gradually inch higher in anticipation of a better Malaysia 3Q16 GDP and lesser disappointment of the upcoming Nov 3Q16 results season, which would eventually to lift KLCI 2017 earnings to grow 9.5% after posting a 3 consecutive yearly decline.

• Portfolio. We closed our position on MAYBANK yesterday (4.6% gain) amid rising overbought levels.

• Trading Buy idea (AJIYA). We see limited downside risks for AJIYA following the recent slump in share prices, supported by expectations of improving earnings in FY17/18, strong netcash/share of 17.4sen (equivalent to 22% of share price) and deeply oversold indicators. A decisive breakout above RM0.80 will spur prices higher towards RM0.855-0.945 zones in the long term. Key supports are RM0.715-0.76. Cut loss at RM0.71

Source: Hong Leong Investment Bank Research - 27 Oct 2016