Market review

• In tandem with the fresh record closing on Wall Street, key regional indices ended on a positive tone led by Japan Nikkei 225, adding 0.47%, and marked the tenth consecutive day of gains, while Hang Seng Index advanced 0.76%.

• Shares on our local bourse ended in the negative territory, despite the positive overnight performance from Wall Street. The FBM KLCI dipped 0.05% and market breadth was negative with 487 losers vs. 404 gainers as sentiments turned softer on the back of foreign outflows. However, overall market volumes stayed above 3bn. Meanwhile, gloves sector trended positively following the upbeat earnings from Top Glove.

• Several bullish factors such as Janet Yellen comments on the stronger economic activities, coupled with the potential passing through of the corporate tax reform by President Trump have contributed towards a positive closing on Wall Street. The Dow surged 0.37% as investors were also bullish on 3Q reporting season.

Technical view

Healthy support above 1,750

• Despite emergence of selling activities over the past week, the FBM KLCI managed to be supported above 1,750. We may anticipate a short-lived technical rebound towards 1,770 as the MACD Histogram extended another green bar. However, should there be a downward violation of 1,750, next support will be set around 1,740.

Market outlook

• We think investors will continue to price in the optimism of third quarter reporting season and the Dow could trade above the 23,000 level on the back of the upbeat earnings from banking stocks. At the same time, the corporate tax reform announcements should be able to extend the bullish sentiments in the upcoming months.

• Meanwhile, stocks on the local front are likely to continue its consolidation phase with the continuation of selling pressure coming from foreign funds. Hence the FBM KLCI may range between the 1,750-1,770 levels over the near term. Nevertheless, O&G stocks may be lifted as Brent crude oil trended higher near the US$58 level.

• Trading Buy – RHBBANK. RHBBANK tumbled to a low of RM4.77 on 11 Aug, following the call off of the merger deal before staging a rebound to close at RM5.15 yesterday. We see attractive proposition in RHBBANK due to its compelling valuations at 0.95 P/BV (31% lower than peers’ 1.37x P/B) and 9x FY18 P/E (24% discount against its peers’ 11.8x), supported by a strong 14% earnings CAGR for FY17-19. RHBBANK continues to ride on business recovery with the implementation of its IGNITE 17 transformation program. Should the asset quality issue is addressed in upcoming 3Q17 results; it may represent a re-rating catalyst for RHB.

Source: Hong Leong Investment Bank Research - 17 Oct 2017