Market review

• The MSCI Asia Pacific Index lost 0.66% at 134.8 amid worries that the 3rd largest economy in Euro will spark political and economic instability following a heavy defeat by Italian PM’s party in a referendum on constitutional reform. Sentiment was also dampened by rising geopolitical risks between US and China after Trump provoked China again on 4 Dec, using Twitter to hammer the country for devaluing its currency, to claim China "heavily" and unfairly taxes U.S. exports, and to slam it for military build-up in the South China Sea.

• Tracking regional markets, KLCI lost 4 pts to 1625 after traded within a range of 6.4 pts between an intra-day high of 1631.4 and a low of 1625. Market breadth was negative with 297 gainers as compared to 440 losers.

• The Dow continued its record-breaking session as the index jumped 46 pts at 19216, after touching an intraday record of 19,275 amid a strong PMI services data, shrugging off concerns about Europe’s stability in the wake of a rejection of Italy’s vote to reform existing constitutional rules and last week’s mixed Nov jobs.

Technical view

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

• On the back of improving oil prices and potential year-end window dressing activities, we remain optimistic of KLCI to move past immediate 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 recapture the 1635-1640 targets will witness potential renewed fall to 1600-1611 levels.

Market outlook

• On the back another record high in Dow, KLCI may attempt to trend higher today following last week’s positive OPEC deal a, which bodes well for oil-exporting countries like Malaysia (oil-related revenue contributed ~15% to government revenue). Improving RM outlook following stabilizing 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 this week.

• Trading idea-AIRASIA. We expect Air Asia share price to find a floor near RM2.47 as bottoming up hourly indicators could suggest imminent technical rebound towards immediate stiff resistance at RM2.71 (downtrend line). A decisive breakout above RM2.71 will lift prices higher towards RM2.84-3.00 levels. Conversely, a breakdown below RM2.47 will trigger further slide towards RM2.20- 2.30 zones. Cut loss at RM2.42.

Source: Hong Leong Investment Bank Research - 6 Dec 2016