Market review

• Led by fierce selloffs in JCI (-4%), PSEI (-2.9%), SENSEX (-2.5%) and TWSE (-2.4%), the MSCI Asia Pacific Index (MXAP) slashed 0.94% to 135.35 and ended 1% lower wow. The pathetic performance was mainly driven by additional outflows of foreign funds following Trump’s unexpected US presidential election win, which strengthened the case for quicker Fed tightening policies and accelerated the unwinding of carry trades amid strong inflation outlook for US amid Trump’s strong fiscal spending spree plans.

• Tracking sluggish regional equities’ markets, sliding currencies and bonds selloff, KLCI tumbled 18.6 pts (recovered from -27.6 pts intraday) to end the week 14.1 pts or 0.85% lower, despite registering a strong 3Q16 GDP. The RM (vs US$) also weakened 1.44% to RM4.3418 and slid 3.4% wow. On 10-yr MGS notes, the yield spiked 0.16% to 3.94% and nosedived 0.32% wow.

• The Dow inched up 40 pts to 18848, recording its 5th consecutive winning streak and ended remarkable week higher by 960 pts or 5.4%, thanks to the positive optimism that Trump will lower taxes, ease corporate regulation and ramp up spending to spur the world’s largest economy.

Technical view

Arduous journey ahead

• Following multiple key supports breakdown, KLCI dived to a low of 1625 last week before recovering to end at 1634 last Friday. In the near term, KLCI outlook has turned bearish and further downward consolidation is expected, unless the index can swiftly reclaim above the 1640 zones. A strong close above 1640 will lift KLCI to retest 1650-1660 this week. On the flip side, a slide below 1625 will accelerate selldown to 1600-1612 levels.

Market outlook

• Given plenty uncertainties ahead in the equities, bonds and currencies markets coupled with the ongoing 3Q16 reporting season and the upcoming Bersih 5 rally (scheduled on 19 Nov), investor are likely to remain wary and be selective in their investments, with focus in weak RM beneficiaries sectors such as gloves, technology, wood-based commodities and plantation.

• Closed positions. We had squared off our positions on DRBHCOM (3.3% return), BPPLAS (0% return), IKHMAS (4.7% loss) and HSL (1.7% loss).

• Trading Buy-TDM. TDM is trading at undemanding 12.8x P/E 17 and 0.69x P/B, about 9.8% and 38% lower than its peers’, supported by a strong 17% EPS CAGR from 2016-2018. The stock appears to be at the tail end of its short term consolidation and a strong breakout above RM0.69 will spur prices higher towards RM0.71-0.775. Cut loss at RM0.625

Source: Hong Leong Investment Bank Research - 14 Nov 2016