Market review

• On the back of recent Trump-led selldown after winning the US presidential election amid expectations for faster Fed hike on speculation Trump’s spending spree will boost inflation, Asian markets staged an oversold rebound as valuations become more palatable. Sentiment was also aided by a mild recovery in oil prices as energy producers climbed after OPEC members were said to be making a final diplomatic push toward securing a deal to cut output.

• Tracking regional markets rebound, KLCI rose as much as 6.8 pts intraday but profit taking and lack of fresh impetus pushed the index into red to end 2.9 pts lower at 1627.6, led by losses in BAT (-80 sen to RM44.04), MAYBANK (-12 sen to RM7.66), GENM (-7 sen to RM4.50), KLCC (-1 sen to RM7.54) and SIME (-7 sen to RM8.02).

• After surging 1035 pts in the last 7 sessions, the Dow eased 55 pts to 18868 on profit taking amid stretched valuations as investors attempt to second-guess the pro fiscal stimulus and pro-business policies that might eventually come out when Trump will be sworn in as US president on 20 Jan 2017. Investors are also watching Yellen’s speech tonight to get a clue on Fed’s rate hike direction.

Technical view

Overall market sentiment stays subdued

• Despite rebounding from 1616 (14 Nov low) to a high of 1637 yesterday, KLCI was unable to hold the gains as the index dropped 2.9 pts to 1627.6. We reiterate our view that for a resumption of uptrend, KLCI must swiftly reclaim above the downtrend channel support near 1640 zones. Should the aforesaid fail to materialize, KLCI is likely to resume its downtrend towards 1600-1612 levels.

Market outlook

• We reiterate our view that KLCI’s near term outlook remains challenging 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). That said, the market should gradually recover towards the year end, buoyed by BNM’s measures to stem FX market volatility, window dressing activities and expectations of Malaysia’s general elections being held in 2017.

• Trading Buy - PENTA. Following a 16.6% fall from 10- year high, PENTA is trading at cheap valuations of trailing 6.9x P/E (40% below peers’ 11.6x) and 2x P/B (31% lower than peers’ 2.8x). We believe undemanding valuations and steeply oversold levels will cushion further slide. Key supports are RM1.24-1.29 while upside resistances are situated at RM1.36, RM1.45 and RM1.57, respectively. Cut loss at RM1.21.

Source: Hong Leong Investment Bank Research - 17 Nov 2016