Market review

• The MSCI Asia Pacific Index (MXAP) slipped 1.1 pts to 138.8, dampened by falling energy-related shares amid sliding oil prices and slowing China’s industrial profits in Sep, raising concern the prospects of a tepid growth in the global economy following recent mixed economic data from US.

• Tracking sluggish regional markets and falling oil prices, KLCI declined 4.9 pts on profit taking after oscillating within a range of 8 pts between an intra-day high of 1674.2 and a low of 1666.3, in absence of fresh leads. Market breadth was negative with 339 gainers as compared to 396 losers.

• The Dow fell 30 pts to 18169 as investors grappled with ongoing mixed 3Q16 reporting season. Global bonds rout (US 10-year Treasury yield surged 0.06% 1.85%) also weighed on investors sentiment amid speculation that major central banks may be moving closer to scaling back their extraordinary stimulus measures in spite of muted global economic outlook.

Technical view

Turning more cautious after falling below 1675

• In the near term, KLCI may continue to be trapped in sideways consolidation mode again after falling below the support-turned-resistance 1675 (19 July high) levels. Lower supports are now situated at 1666 (200-d SMA), 1657 (38.2% FR) 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 engage in range bound pattern for a while as investors await more clarity from 1-2 Nov FOMC meeting 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 FGV yesterday (4.2% gain) after hitting above R1 upside target.

• Trading Buy idea (ECOWLD). The stock has been trading within its upward channel from the RM1.20 low. With prices trading above major SMAs, higher prices are likely in the short term as technical indicators are on the mend. We expect prices to break above the RM1.40 and head higher towards RM1.46-1.56 in the medium term. Key supports are RM1.26-1.30. Cut loss at RM1.25.

Source: Hong Leong Investment Bank Research - 28 Oct 2016