Market Review

• Asian markets were treading water as investors await monetary policy guidance from the FOMC, largely discounted the geopolitical risk amid Trump’s rhetoric speech at the UN to threaten to annihilate North Korea. Overall, expectations are high that the Fed will unveil plans to start shrinking its US$4.5 trillion balance sheet and consensus (with 50%probability) is still anticipating one more rate hike in Dec 2017.

• KLCI lost 3.1 pts to 1773, registering its 3rd losing streak, led by major selldown in CIMB (-15 sen to RM6.31), PETCHEM (-7 sen to RM7.29), SIME (-5 sen to RM9.13), TENAGA (-6 sen to RM14.50) and MAXIS (-4 sen to RM5.72). Market breadth was negative with 377 gainers as compared to 476 losers as sentiment was dampened by muted regional markets ahead of the FOMC decision and a statement by Moodys that Malaysia reserve buffer is among the weakest in Asia.

• The Dow continued to reach new highs (+42 pts to 22412), driven by finance stocks as the 10-yr Treasuries yield inched up 0.02% to 2.27% while the dollar surged 0.65% to 92.2 after the Fed delivered a more hawkish tone than market anticipated. The U.S. central bank kept interest rates unchanged as expected and said it would start reducing the size of its $4.5 trillion asset portfolio commencing in October. The Fed also signaled a December rate increase remains on the table as the central bank embarks on an unprecedented unwind of crisis-era asset purchases (“gradually and predictably”) that had helped to buoy markets over the past decade.

Technical View

Extended consolidation amid weakening technicals

• After falling below immediate supports of 10-d/20-d SMAs, KLCI ended lower for the 3rd straight sessions, supported by weakening technicals. Downside risks persist with key supports at 1762-1768 while resistances are pegged at 1780-1790.

Market Outlook

• For Dow, we remain optimistic that the ongoing uptrend may continue towards 22700-22800 before another round of profit taking pullback, supported by steady US economic growth amid anticipation of revised trump economic policies.

• Meanwhile, with the KLCI pulled back further below the 1775 or 30-d SMA levels yesterday, more retracement may persist as profit taking activities continue to take place ahead of an extended long weekend holiday (Bursa Malaysia will be closed for Awal Muharram on 22 Sep).

• Closed position: Yesterday, we took profit on Hibiscus, with a 46% return.

Source: Hong Leong Investment Bank Research - 2 Oct 2017