Market review

• Most of the equities in Asian stock markets ended higher led by positive business confidence survey among large manufacturer in Japan over the past 3 months, coupled with a positive data from China's factory activity. The Nikkei 225 and ASX 200 started the 4Q with gains of 0.22% and 0.84% respectively.

• Meanwhile, the FBM KLCI bucked the regional trend with a marginal downward closing of 0.05% after hitting an intra-day bottom of 1,750.94 pts. Overall, investors were still trading on a cautious tone, contributing to a negative market breadth; there were 538 decliners vs 288 advancers. Market volumes were at 2.23bn, worth RM1.74bn as penny stocks like MLAB and BORNOIL were topping the actives list.

• Wall Street closed higher for all the major indexes on the back of better-than-expected manufacturing data, where the ISM manufacturing index surged towards the 60.8 (highest in 13 years), coupled with the optimism on the corporate tax reform by president Trump.

Technical view

KLCI could be due for technical rebound

• After trending lower over the past 10 consecutive days on KLCI, it has rebounded above critical support of 1,750 with oversold signals flashing on both the RSI and Stochastics oscillators. The key index could be due for a technical rebound and revisit the resistance along 1,760- 1,770. Meanwhile, should there be a downward violation of 1,750, next support will be pegged around 1,740.

Market outlook

• For the US market, we think the uptrend momentum should be intact as investors have started to further position themselves ahead of the corporate tax details that will be revealed by President Trump. However, gains may be capped along the way throughout October with the commencement of the balance sheet dialback by the Fed.

• Meanwhile, we think the selling pressure by the foreign funds could be overdone and the KLCI rebounding above the support of 1,750 is likely to spur further bargain hunting activities. We also opine that positive spillover from overseas market should be seen in the local bourse.

• Please refer to our Retail Research report entitled 4Q17 Quarterly Retail Strategy for recommendations for 4Q after a slightly muted 3Q.

Source: Hong Leong Investment Bank Research - 3 Oct 2017