Market review

• After surging 2% wow, the MSCI ASIA Pac (MXAP) index dipped 0.4% to 138 on profit taking ahead of the upcoming Fed meeting outcome on 14 Dec. Sentiment was also dampened by a 2.5% slide in SHCOMCP, reversing earlier gains spurred by a boost in oil prices, as worsening concern on China’s property market’s outlook prompted a selloff in Chinese shares.

• Last Friday, KLCI closed 2.3 pts lower ahead of the long weekend holiday (Bursa Malaysia was for Awal Muharram holiday on 12 Dec). Despite the loss, KLCI added 12.5 pts or 0.76% wow, as sentiment was boosted by oil prices rally, record-setting Dow, stabilizing RM/US$ and potential year-end window dressing activities.

• Ahead of the upcoming 13-14 Dec FOCM meeting, the Dow managed to close at fresh new record overnight as the index advanced 40 pts to 19796, after setting an all time high of 19,825 intraday. To recap, the Dow posted 15 record closes since Trump’s victory on 8 Nov and chalked up a pronounced 7.7% gain, as sentiment was enhanced by “Trumponomics” and recent rally in oil prices amid OPEC and non-OPEC deal to cut output.

Technical view

Still upside bias to retest 1650-1665 levels

• Riding on Dow’s multi-sessions rally, stabilizing Ringgit and surging oil prices and potential year-end window dressing activities, we still expect KLCI to test 1650 (61.8% FR) and 1665 (200-d SMA) levels by end Dec, fueled by golden cross in 10-d/20-d SMA and MACD, albeit slightly overbought slow stochastic readings. Key supports are now situated at 1637 (30-d SMA), 1630 (10-d SMA) and 1612 (24 June low) levels.

Market outlook

• While investors will likely stay risk-off (reflected by the thin volume) until further Fed clarity on 2017 interest rates outlook on 14 Dec, local market sentiment is expected to be boosted by the Dow’s record rally, longer-than expected ECB’s QE extensions and positives arising from improving oil prices post OPEC & non-OPEC decision (i.e. fiscal position & current account). Overall, we expect KLCI to trend higher towards 1650-1665 by end-Dec, reinforced by strong tendency of a year-end window dressing rally, stabilizing RM/US$ and potential election catalyst.

• Trading buy-DNEX. DNEX is diversifying into oil & gas businesses from the traditional bread and butter ICT services. Valuation is cheap at 7.3x FY17 P/E (6.4x ex cash of 3.1sen), supported by 34% earnings CAGR from FY15-18 and decent yield of 3.3% for FY17-18. The stock is ripe for imminent technical rebound following the formation of Dragonfly doji pattern and bottoming up indicators to test RM0.255-0.29. Cut loss at RM0.22.

Source: Hong Leong Investment Bank Research - 13 Dec 2016