Market review

• Taking cue from Dow’s fresh record close overnight, Asian markets were broadly higher, led by a 0.74% gain in Nikkei 225 amid a weak Japanese yen that helped exporters’ stocks and a rally in the Japan's telco giant, Softbank shares following Trump’s announcement that Softbank would invest US$50bn in the US and aim to create 50,000 jobs in the next four years. Sentiment was also buoyed by expectations of the ECB to extend QE, particularly after the Italy referendum on 4 Dec.

• Tracking higher regional markets and the firmer RM aided by new BNM rules to strengthen the RM, KLCI inched up 2.7 pts to 1632.5, offsetting negative sentiment from falling oil prices (after data showed that the OPEC and Russia recorded high production in Nov), weakening Malaysia exports and reserves data.

• The Dow rallied 298 pts or 1.6% to 19550, a 3rd straight record close as the bond selloff eased, fueling demand for dividend-yielding equities amid mounting speculation the ECB will extend its asset-buying program by another six months. The telcos and property stocks joined the post U.S. election rally while biotechnology companies tumbled the most as Trump said he opposes of high drug prices.

Technical view

Upside bias to break immediate hurdle at 1640

• On the back of overnight Dow’s powerful rally, stabilizing Ringgit, tapering MGS selloff (10-year MGS yield tumbled to 4.18% yesterday from 4.46% on 29 Nov) and potential year-end window dressing activities, KLCI is envisaged to break above immediate hurdle of 1640 zones, fueled by strengthening technical indicators. A decisive breakout will spur further upside toward 1650 (61.8% FR) and 1666 levels (downtrend line and 200-d SMA). 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 (reflected by the thin volume) until further clarity emerges, local market should be buoyed by the overnight Dow’s rally and hopes the ECB will extend QE by another six months.

• Overall, investors may attempt to walk past the recent 3Q16 weak earnings cycle and Trump policy jitters to focus on positives from improving oil prices post OPEC decision (i.e. fiscal position & current account). We expect KLCI to trend higher towards 1640-1666 by end Dec, reinforced by strong tendency of a year-end window dressing rally, tapering bonds selloff and stabilizing RM/US$ following recent BNM’s curbs against NDFs.

Source: Hong Leong Investment Bank Research - 8 Dec 2016