Market review

• Asian regional benchmark indices ended on a slightly positive tone as the seven-man Politburo Standing Committee was unveiled yesterday; the Shanghai Composite Index and Hang Seng Index ended higher by 0.30% and 0.53% respectively. Meanwhile, Japan Nikkei 225 declined 0.45% after 16 days of consecutive gains.

• On the local front, the FBM KLCI managed to recoup earlier losses after hitting an intra-day low near the 1,733 level, inching 0.17% higher amid as buying support emerged ahead of Budget 2018. However, market breadth remained negative as decliners led advancers by a ratio of 467-to-367. Market volumes stood at 2.46bn shares, worth RM1.89bn.

• Despite healthy economic data such as core durable goods orders (non-defense capital goods orders rose 1.3% in September) and housing data (existing home sales increased 18.9% in September), the US equities ended weaker as investors were less optimistic on selected stocks’ outlook. The Dow and S&P500 declined 0.48% and 0.47% respectively.

Technical view

KLCI still within the short term downward channel, but oversold

• Following the series of falling candles over the past two weeks, the FBM KLCI has staged a rebound near the 1,733 level amid oversold Stochastics and RSI oscillators. Also, the MACD Histogram has turned green. We think the market could be supporting the technical rebound towards the 1,740-1,750 levels. Meanwhile, support will be located around 1,730.

Market outlook

• We may anticipate that most of the investors could start to book their profits after a series of rally on Wall Street recognizing the upbeat performance on the recent earnings season. However, the continuation of rally will need to depend on several factors such as the successor of the next Fed Chair and tax reform details. Meanwhile, the immediate hurdle on the Dow is envisaged around 23,500.

• After the mild recovery of the KLCI yesterday, we are likely to expect short term technical rebound on the back of bargain hunting activities amid the oversold signals. Hence, the key index could trend higher towards 1,750 in the anticipation of a populist measure Budget 2018. Also, we are anticipating a potential recovery in O&G stocks amid the steadier trend of Brent crude oil above the US$58 level.

Source: Hong Leong Investment Bank Research - 26 Oct 2017