Market review

• Although China recorded better-than-expected industrial production and retail sales in Nov, Asian stock markets trended sideways prior to the FOMC meeting (13th-14th Dec). The Shanghai Composite index and Hang Seng Index gained marginally higher by 0.07% and 0.06% respectively, while the MSCI ASIA Pac (MXAP) index rose 0.38%.

• FBM KLCI surged 10.03 pts to an intra-day high of 1,651.45 pts, thanks to higher Brent crude price (which rose above US$55/barrel), which pushed oil and gas heavyweights higher such as Sapura Kencana (+6.0 sen). However, quick profit taking reversed more than half of the intra-day gains to end at 1,645.28 pts (+3.86 pts) as market participants awaits the conclusion from the FOMC meeting.

• Meanwhile, Wall Street ended at a fresh all-time-high position, as recent US economic data such as jobs data suggests that US economy is still improving, which in turn warrant a rate hike by the Federal Reserve.

Technical view

KLCI may consolidate over the near term

• After reversing the gapped-up formation on the FBM KLCI, we expect a short term weakness to emerge in the near term, which the key index may fluctuate around the 1,640 level. Further supports are located around the 1,636 (30-d SMA), 1,631 (10-d SMA) and 1,612 (24 June low) levels. Also, the stochastic oscillator indicates an overbought position on the FBM KLCI.

Market outlook

• With the Dow maintaining its momentum above the 10-d SMA, marking another record high position, we believe investors will stay positive with potential resistance seen around the 20,000 psychological level ahead of the Fed’s meeting. On the local front, while we believe investors may deploy selling into strength strategy and profit taking may continue over this week on the back of an uncertain rate-hike outcome. Nevertheless, we still expect the FBM KLCI to trend higher towards 1650-1665 by end-Dec, in anticipation of year-end window dressing activities, coupled with the potential election catalyst.

Source: Hong Leong Investment Bank Research - 14 Dec 2016