Market review

• Buying interest emerged within key regional benchmark indices in tandem with the overnight Wall Street performance as investors were optimistic ahead of the US jobs report; the Nikkei 255 added 0.30%, while Hang Seng Index gained 0.29%.

• Meanwhile, overall stocks on the local front managed to gain positive trading interest as the FBM KLCI surpassed the 1,760 level to end at 1,764.00 pts (+0.48% wow), resulting in a positive market breadth with 488 gainers vs 349 losers. Overall trading volumes were healthy above 2.0bn mark at 2.49bn shares traded for the session. Construction index advanced 1.21% as traders were focusing on the LRT3 contracts that were being awarded over the past week.

• US stock markets closed in a mixed note on Friday with the weaker-than-expected non-farm payroll in September, which was affected heavily by the rough weather storms last month. However, the dollar index rose 0.80% at 93.62 pts for the week. Brent crude oil fell 3.51% for the week as traders focused on the Tropical Storm Nate that could potentially disrupts the crude production and refining processes in the US Gulf of Mexico.

Technical view

KLCI to re-visit the resistance around 1,770

• The FBM KLCI gained momentum above 1,764 and the daily MACD Histogram extended another green bar. Meanwhile, the daily RSI and Stochastics oscillators are oversold. With the technical indicators turning mildly positive, we think the FBM KLCI may revisit 1,770-1,775. Support will be located around 1,750-1,755.

Market outlook

• We think the Wall Street may pullback mildly after a long stretch of rally over the past two weeks amid the mixed bags of economic data, coupled with rich valuations and overbought status in the US equities.

• On our local front, the FBM KLCI is likely rebound further with the emergence of buying support last week. Also, with the recent headlines suggesting LRT3 contracts are being dish out, construction related stocks could trade actively in the near term.

• Trading Buy – GENM. GENM is trading at undemanding 15.1x FY18 P/E, which is 7% below its average 10-year average P/E of 16.3x and supported by a ~10% earnings CAGR for FY16-19 after the drop following the weak 2Q17 results. We believe such valuations and grossly oversold positions have largely priced in the negatives, providing a sufficient margin of safety to cushion further selldown in share prices.

Source: Hong Leong Investment Bank Research - 9 Oct 2017