Market review

• Taking cue from overnight retreat in Dow, the MSCI Asia Pacific Index (MXAP) eased 0.3% to 136.2 after rising in the last three sessions. Sentiment was cautious ahead of the key events from OPEC talk (30 Nov), U.S. jobs report (2 Dec) and Italy’s referendum (4 Dec).

• Tracking overnight losses in Dow and muted regional markets, KLCI lost 1.7 pts to 1626.9 as sentiment was weighed down by continued weakness in RM (vs US$) and rising 10-year BNM yield coupled with the ongoing 3Q16 reporting season. Market breadth was bearish as losers swarmed gainers 543 to 214, mainly driven by selling pressures in lower liners and penny stocks.

• Dow inched up 23 pts on the back of better-than-expected economic reports (i.e. final US 3Q16 GDP, home prices and consumer confidence). However, sentiment was edgy due to valuations concern (Dow 2017 P/E 15.1x vs 10- year average 14.7x) and a 3.8% slide in WTI oil price amid worries that major producers may disagree on the output cut.

Technical view

ST range bound within 1610-1640 levels

• In anticipation of year-end window dressing activities, KLCI is attempting to break the immediate 1635 (lower downtrend channel) resistance in the near term. Only a decisive breakout above 1635 will open up further gains toward 1650-1667 levels. On the flip side, failure to recapture the 1635 target will witness potential renewed fall to 1600-1611 support levels.

Market outlook

• Market sentiment will continue to be determined by the ringgit weakening bias and subdued oil prices, compounded by the lack of positive domestic catalysts and the ongoing lackluster 3Q16 reporting season. That said, we expect the traditional year-end window dressing activities to provide a good cushion in the event of any major external shocks.

• All eyes are focused on the OPEC outcome today to see whether members are agreeable to a collective cut of 1.1 million barrels/day before proceeding with a proposal to non-members to cut another 600,000 bbl/day. A positive outcome, resting largely on Iran and Iraq’s willingness to cut output, could lift oil prices and market sentiment in the near-term, particularly to oil-export countries like Malaysia (oil-related revenue contributed ~15% to government revenue)

Source: Hong Leong Investment Bank Research - 30 Nov 2016