Market review

• Following overnight Dow’s fresh record close amid strong PMI services data, the MSCI Asia Pacific Index rebounded 0.85% at 135.94, shrugging off the failed referendum in Italy and realigned its focus on the upcoming ECB (8 Dec) and FOMC (15 Dec) meetings.

• Tracking higher regional markets, KLCI gained 4.8 pts to 1629.7 after traded within a band of 5.7 pts between an intra-day high of 1629.7 and a low of 1624.0. Despite the headline gains, market breadth was negative with 304 gainers as compared to 409 losers while daily volume fell 4.4% to 1.09bn shares.

• The Dow continued its record-breaking session as the index jumped 36 pts at 19252, buoyed by continued gains in dividend-rich telecommunication shares as well as financial stocks (beneficiaries of interest rates hike), offsetting pullback in WTI oil prices ahead of the OPEC/non-OPEC meeting on 10 Dec to discuss a deal to limit production. Sentiment was also boosted by speculation that the ECB will extend its monthly bond purchases to stoke growth in the region after a “NO” Italy’s referendum.

Technical view

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

• On the back of improving oil prices, stabilizing Ringgit, falling 10-year MGS yield and potential year-end window dressing activities, KLCI is envisaged to break immediate congested hurdles of 1635-1640 zones. A decisive breakout above these levels will stir further upside toward 1650-1667 levels. On the contrary, failure to recapture these targets will witness ongoing range bound pattern to prevail with retracement supports at 1600-1611 levels.

Market outlook

• While investors are likely staying risk-off until further clarity emerges, KLCI may attempt to walk past the 3Q16 weak earnings cycle and Trump policy jitters to focus on positives from stronger oil prices post OPEC decision (i.e. fiscal position & current account). We expect KLCI to trend higher towards 1650-1666 (200-d SMA) post Dec FOMC meeting (rate hike relief), reinforced by strong tendency of year-end window dressing rally and stabilizing RM/US$ following recent BNM’s curbs against NDFs.

• Trading idea-TUNEPRO. The stock is trading at undemanding 11.5x FY17 P/E and 2.2x P/B, which are 34% below its historical average (since debut) of 17x and 33% below its historical P/B of 3.3x respectively. It is also supported by decent yields of 3.5-4.2% and 12% earnings CAGR for FY16-18. We expect downtrend reversal in the near term following bullish Harami formation. Upside targets are RM1.51-1.72 while supports fall on RM1.36- 1.40. Cut loss at RM1.33.

Source: Hong Leong Investment Bank Research - 7 Dec 2016