Market review

• With the marginal gains on Wall Street, the Asian regional indices ended mostly higher. Nikkei 225 inched 0.04% higher ahead of the Japan’s election on 22 nd of October, while Shanghai Composite Index and Hang Seng Index advanced 0.28% and 1.17% respectively.

• On the local front, selling pressure extended with the KLCI ended lower at 1,740.65 (-0.19%) led by banking heavyweights. Meanwhile, on the broader market, market breadth was neutral with a ratio of 1-to-1, accompanied by overall traded volumes of 2.62bn. Stocks that are related to Baltic Dry Index like Hubline and Maybulk ended on a positive note.

• U.S. equities ended on a bullish tone, forming the sixth consecutive weeks of gains on the back of the upbeat financial results from most of the heavyweights, coupled with the Senate passing a budget resolution late last week, which suggested Donald Trump is in the progress to seal the deal on the corporate tax reform.

Technical view

Still hovering near SMA200

• Lackluster tone on Bursa Malaysia contributed to the narrow trading range of 1,740-1,745 for the FBM KLCI between. With the MACD Indicator hovering below the zero level, we expect the downward bias mode may persist over the near term. However, the Stochastics oscillator is suggesting an oversold position for KLCI – downside may be capped along 1,730. On the flip side, should there be a breakout above 1,750, next resistance will be envisaged around 1,760.

Market outlook

• As investors continue to focus on President Trump’s economic agenda and the firmer growth on the corporate earnings so far, we believe the Dow may extend its uptrend intact towards the 23,500 level.

• On the local bourse, we expect the consolidation phase may persist ahead of the Malaysian Budget 2018 as investors will fine tune their investment ideas after the tabling of budget on 27th October. Meanwhile, trading focus could linger around penny stocks related to technology sector and O&G – the latter may trade actively amid the steadier tone of crude oil prices.

• Trading Buy – KGB. KGB aims to capture a share of the growing semiconductor capex spending, especially in Taiwan (contributed ~14% to 1H17 sales) and China (~18% to 1H17 sales), who are amongst the top three largest spending countries on fab equipment. According to the SEMI, global capex spending in the semiconductor industry for fab construction and fab equipment is expected to hit a record high of USD57bn in 2017 and USD64bn in 2018. Ex-cash of 9.1sen, KGB is currently trading at 14.6x FY16 P/E (in line with 5-year average 17x).

Source: Hong Leong Investment Bank Research - 23 Oct 2017