Market review

• Tracking the fresh upward wave on overnight record Dow closing (due to a solid start in US earnings season and optimism over Trump's pro-growth initiatives), Asian markets extended their gains ahead of the CNY holidays (markets in China, South Korea, Taiwan, and Vietnam will be closed today). Nikkei, HSI and KOSPI were the top performers with 1.8%, 1.4% and 0.7% gains, respectively.

• Tracking higher regional markets, KLCI (+8.3 pts to 1,692) gained for the 4th straight session, spurred by gains in FBM30 components i.e. PETGAS (+64 sen to RM20.94), SIME (+12 sen to RM8.82), AXIATA (+8 sen to RM4.99), CIMB (+6 sen to RM5.02) and GENTING (+13 sen to RM8.53). Market breadth was positive with 432 gainers against 308 losers, supported by higher trading volume of 1.41bn shares against Wednesday’s 1.3bn shares.

• Despite experiencing mild profit taking, the Dow continued to inch up by 32 pts to 20,101 as Wall Street cheered Donald trump's business friendly policies coupled a good start in early 4Q16 reporting season (expected to grow by 7%, the biggest jump in two years). Meanwhile, dollar index rebounded 0.6% after slipping below 100 on 25 Jan.

Technical view

The retest 1,700 psychological barrier

• Despite overbought slow stochastic, bullish MACD and RSI indicators are likely to drive KLCI higher to retest our envisaged 1,700 psychological barrier before expecting a healthy pullback to neutralize current overbought positions.

Market outlook

• Ongoing strong 4Q16 results and speculations that Trump will continue to unveil stimulative measures to boost US growth without destabilizing the global economy are likely to support Dow around 20,000 levels in the near term.

• Shares on Bursa Malaysia are likely to trade in a lackluster mode (a half-day trading session) today ahead of the long CNY (30 Jan) and Federal Territory (1 Feb) holidays. Although we remain optimistic that KLCI will eventually retest the 1,700 level, traders may adopt the selling-into-strength strategy, after stochastics oscillator is grossly overbought

Source: Hong Leong Investment Bank Research - 27 Jan 2017