Market review

• Ahead of the key events from U.S. jobs report (2 Dec) and Italy’s referendum (4 Dec), Asian markets stuttered as the MSCI Asia Pacific Index eased 0.58-pt or 0.43% to 135.69 (-0.04-pt WoW), tracking profit taking pullback on Wall Street, as equity markets indicate the Trump rally is starting to wane.

• Bucking lower regional markets, KLCI rose 2.5 pts to 1629 (+1.7 pts WoW), spurred by a strong rally in oil prices as investors began to walk past the disappointing 3Q16 earnings cycle and Trump policy jitters to focus on positives from stronger oil prices post OPEC decision (i.e. fiscal position & current account).

• The Dow ended 21 pts lower after a mixed Nov jobs. WoW, the index gained 18 pts, barely continuing a four week winning streak as persistent profit taking activities capped further upside due to lofty valuations and concerns of a long gestation period for the impact of Trump’s perceived stimulative and friendly policies to translate into corporate profits. Outside the U.S., there was caution ahead of Italy’s referendum (4 Dec) as a “NO” vote could trigger a new wave of financial jitters in the Eurozone in the short term.

Technical view

Must break congested resistances of 1635-1640 to begin a new rally

• On the back of sustainable oil prices strength to boost broader market sentiment, we remain cautiously optimistic of potential year-end window dressing activities to lift KLCI higher above congested resistances of 1635-1640 zones. A decisive breakout above 1635-1640 will open up further gains toward 1650-1667 levels. On the contrary, failure to re capture the 1635-1640 targets will witness potential renewed fall to 1600-1611 levels.

Market outlook

• KLCI may extend the rebound today following last week’s positive OPEC deal, which bodes well for oil-exporting countries like Malaysia (oil-related revenue contributed c.15% to government revenue). Improving RM outlook following higher oil prices and recent BNM’s curbs against NDFs coupled with the traditional year-end window dressing activities are expected to bode well for KLCI to gain further strength towards 1635-1640 levels this week.

Source: Hong Leong Investment Bank Research - 5 Dec 2016