Market review

• Ahead of the 1st FOMC meeting of 2017, Asian markets ended mildly higher after a 2-day fall as better-than-expected China’s official factory gauge offset uncertainty from the Trump administration. Also in focus is the disarray in currency markets, after Trump and his top economic adviser criticized Germany, Japan and China, saying the three countries' devalued currencies was hurting American firms and consumers.

• Bursa Malaysia was closed yesterday due to the Federal Territory holiday. On 31 Jan, KLCI extended a 2-day decline as the index tumbled 14.8 pts to 1671.54, dragged down by SIME (-32 sen to RM8.91), ASTRO (-7 sen to RM2.72), BAT (-114 sen to RM46.34), RHBBANK (-12 sen to RM4.90) and GENTING (-20 sen to RM8.20). Despite the profit taking consolidation, KLCI still managed to gain about 31 pts or 1.8% in Jan.

• The Dow jumped as much as 103 pts in the early trades following higher-than-expected data from ADP payroll and ISM manufacturing coupled with the rally in Apple share price (due to its strong 4Q16 results). However, the early gains were reduced to 27 pts as investors await Jan payroll data on Friday and after the Jan FOMC statement did little to alter market views on the timing for further interest-rate hikes, leaving the dollar to Treasuries and Dow little changed.

Technical view

Extended consolidation

• After hitting a 5-month high of 1695 on 27 Jan, overbought profit-taking saw the KLCI declining for a 2nd session. We expect KLCI to engage in a brief consolidation after surging 1.8% in Jan, supported by weakening indicators to neutralize current overbought positions. Weekly key resistances are 1695-1700 while supports fall on 1660-1670.

Market outlook

• Ongoing US 4Q16 reporting season and uncertainty driven by a culmination of Trump’s confrontational policies during his first full week in office may witness the Dow to trade sideways in the near term.

• Ahead of the Feb reporting season, shares on Bursa Malaysia will likely to trap in range bound consolidation after surging 1.8% in Jan. Overall, trading momentum may switch to lower liners and smallcaps after their recent retracements.

• Trading Buy-TALIWRK. We like the stock due to its diversified and stable revenue stream, spanning across different sectors which will provide them more stable earnings and less vulnerable to idiosyncratic risk. Following the formation of Tweezers bottoms and bottoming up indicators, the stock is poised for a downtrend resistance breakout soon and advance higher towards RM1.56-1.71 levels in the mid to long term. Key supports are RM1.41- 1.44. Cut loss at RM1.37.

Source: Hong Leong Investment Bank Research - 2 Feb 2017