Market review

• The MSCI Asia Pacific Index (MXAP) eased 1.2 pts 136.72 (-2 pts or 1.44% wow) as investors weighed central banks’ meetings last week that prepared to pare back stimulus despite evidence of slowing global economy. Markets have also been paralyzed into inaction as investors grew increasingly anxious before 8 Nov U.S. election.

• Tracking lower regional markets, KLCI ended flat after traded within a range of 7.4 pts between an intra-day high of 1651.3 and a low of 1644 with trading volume slipping 9% to 1.32bn shares. WoW, KLCI plunged 22 pts or 1.4% to 1648.2 as investors braced with the prospects impending US rates hike in Dec, sliding oil prices and the US election risks.

• The Dow ended 42 pts lower to 17888 (and recorded weekly slide of 1.5%), registering a 7th straight decline, as expectations of a US earnings recession will end in 3Q16 and a positive US jobs data last Friday did little to soothe anxiety over the presidential election. Sentiment was also dampened by sinking oil prices as hopes faded that OPEC will be able to implement a deal to cut output after Saudi Arabia threatened to raise output if other members did not agree to cuts.

Technical view

Technical outlook to stay bearish unless index can decisively reclaims above 200-d SMA

• The spinning top formation last Friday could signal potential reversal of a downtrend following a retracement from 1679.1 (24 Oct high). Having said that, any rebound is likely to remain shortlived unless KLCI can swiftly reclaim above the support-turned-resistance at 1657 (38.2% FR) and 1667 (200-d SMA) levels. On the flip side, a fall below 1645 (20 Sep low) will witness index to head lower at 1639 (23.6% FR) and 1622 (1 June low).

Market outlook

• On the back of Nov reporting season and extended oil price consolidation ahead of the OPEC meeting (30 Nov), KLCI may continue to drift lower, ahead of the tightening US election as investors worldwide are boosting hedges against the possibility of a Donald Trump upset, given Trump's controversial and protectionism policy. Should the outcome favour Trump, KLCI may witness frenzy selloff towards 1600-1622 zones in the near term. On the contrary, a Clinton victory may see KLCI to stage a relief rally to retest 1684-1700 territory.

• That said, we expect any drop will be cushioned by a highly successful PM’s visit to China last week, witnessing the signing of 14 agreements on several iconic and mega projects to the tune of RM144bn.

Source: Hong Leong Investment Bank Research - 7 Nov 2016