Market review

• Led by fierce selloff in JCI (-2.2%), SET (2.1%) and PSEI (-1.5%), the MSCI Asia Pacific Index (MXAP) slid 1.12 pts or 0.8% to 134.23, accelerating the reversal of capital flows and unwinding of carry trades on speculation Trump will take a more protectionist approach to trade and that his plans to increase spending in the U.S. will spur inflation and result in a swifter pace of interest-rate increases by the Fed.

• Despite steadier performance on Ringgit following BNM’s swift action to reinforce measures and a rebound in 3Q16 GDP growth that helped to relieve concern on growth outlook, KLCI continued to witness persistent selling spree as the index tumbled 17.6 pts to 1616.6. Meanwhile, tracking global rout in bonds market, Malaysia 10-yr MGS yield spiked 0.19% to 4.13%, rallying 0.51% in the last six sessions.

• The Dow’s recent remarkable Trump’s election rally fizzled up as the index only gained 21 pts to 18868 after touching a historic high of 18934 (+86 pts) amid expectations that President-elect Trump will increase government spending to boost economic growth. Overall, broader market undertone was cautious after recent surge as investors wait for more concrete plans from the Trump administration when he will be sworn in as US president on 20 Jan 2017.

Technical view

Bumpy ride to prevail

• Tracking sluggish ASEAN markets, sentiment on the local bourse remained chaotic yesterday as the KLCI broke 11 Nov low of 1625 to end at 1616.6. Given a deteriorating technical outlook, KLCI is envisaged to trade southbound in the immediate term, targeting 1600 as the next crucial support. Our bearish stance will change if KLCI can stage a decisive and swift rebound above the 1625-1640 zones.

Market outlook

• We expect KLCI’s near term outlook to remain subdued (with crucial support near 1600 as market is getting oversold) on the back of uncertainties in the equities, bonds and currencies markets coupled with the ongoing 3Q16 reporting season and the upcoming Bersih 5 rally (scheduled on 19 Nov).

• While investment sentiment remains soft, the market should gradually recover towards the year end, buoyed by window dressing and expectations of Malaysia’s general elections being held by mid-17. We advocate defensive stance in stocks with earnings certainty and domestic oriented catalysts to weather market volatility induced by Trump’s trauma (kindly refer 10 & 14 Nov strategy reports)

Source: Hong Leong Investment Bank Research - 15 Nov 2016