Market review

• Investors were focusing on China's 19th National Congress to look for signs of future policy direction; Shanghai Composite Index and Hang Seng Index ended higher by 0.28% and 0.05% respectively.

• Selling activities extended on the local front as the FBM KLCI tripped below the 1,750 support to end at 1,748.99 pts led by CIMB (-9.0 sen) and Petronas Dagangan (-72.0 sen). Market traded volumes stood at 2.89bn, worth of RM2.28bn value. Market breadth turned negative as decliners outpaced advancers by a ratio of 468-to-395 stocks. Nevertheless, penny stocks like Palette and Keyasic which were related to IoT gained traction.

• US stock markets closed positively overnight with the Dow and S&P500 hitting another record level in anticipation of better-than-expected ongoing reporting season. Also, US dollar extended gains on the back of Trump's potential candidate for the Fed is deemed to be having more hawkish tone than Janet Yellen.

Technical view

Breaking mildly below the 1,750 immediate support

• As the FBM KLCI violated below the 1,750 level, the next level of support is located around 1,740. The MACD Indicator has turned negative for the time being, while both the RSI and Stochastics oscillators are still hovering below 50. Meanwhile, the resistance will be envisaged around 1,760.

Market outlook

• We think market could be pricing in most of the upbeat US earnings results and the Wall Street may continue its uptrend move over the near term. Furthermore, the Dow breaking above the 23,000 psychological may spur further trading interest towards 23,500.

• On the local front, since the KLCI has violated below the 1,750 support level, stocks may trade on a downward bias mode. That said, trading activities may be seen on O&G stocks with the Brent crude oil prices hovering near the US$58 level. In the near term, investors may opt to wait for more clues in the Budget 2018 next week and the 3Q reporting season which will be due in November.

• Trading Buy. SUNWAY. Sunway’s values resurface after the recent pullback from the high of RM1.96 to RM1.64 following both the bonus shares and warrants corporate exercises. Our institutional research maintains a BUY rating on Sunway with a SOP TP of RM2.25 as we believe the stock should be rerated and trade closer to its peers such as IJM (18.5x FY18 P/E) and Gamuda (15.6x FY18 P/E) given its diversified income stream and declassification from property sector (now at Trading & services).

Source: Hong Leong Investment Bank Research - 19 Oct 2017