Market Review

• Asian stock markets closed lower on the back of selloffs amongst energy stocks after crude oil prices tumbled for another session. The cautious tone spread across Asia led by Nikkei 225, which dived 1.57%, while HSI and SHCOMP fell 1.03% and 0.79% respectively.

• Tracking sluggish regional markets and ahead of the FBMKLCI index rebalancing exercise on 30 Nov, selling pressure emerged across the board and KLCI tumbled 10.6 pts to 1723 (breached below the support of 1730), led by heavyweights such as Maybank (-13.0 sen) and Petronas Chemical (-15.0 sen). On the broader market, there were 2 advancers for every 5 declining stocks. Trading volume decreased to 2.34bn shares worth RM2.28bn as compared to Tuesday’s 2.98bn shares worth RM2.6bn.

• The Dow slid 138 pts to 23271 as sliding oil prices and worries over the progress of a U.S. tax overhaul left investors increasingly averse to putting more money into assets seen as risky. WTI fell 0.7% to US$55.7 after the U.S. Energy Information Administration showed that domestic crude supplies rose by 1.9 million barrels for the week ended 10 Nov, contrary to the forecast for a decline of 1 million barrels.

Technical View

Downside bias with lower supports at 1700-1706

• As highlighted yesterday, a decisive breakdown1729 (17 Apr low) coupled with bearish technical indicators (after a 24-pt plunge in four consecutive days) could witness KLCI correct further towards 1706 (50% FR) and 1700 psychological levels. Immediate overhead resistance stays at 1728 (61.8% FR), 1740 (20-d SMA) and 1751 (200-d SMA) levels.

Market Outlook

• In spite of the near term worries about the delay of US tax cuts and a healthy pullback in crude oil prices, any downside in Dow is likely to be well supported for the time being amid positive economic prospects and corporate earnings outlook coupled with gradual interest rates hikes. Hence, the Dow may be trapped in range bound consolidation within 22.8k to 24k over the near term until more clarity of the tax overhaul details.

• On Bursa Malaysia, downside of the KLCI could extend further after violating the latest major 1730 support. Also, market sentiments may remain cautious and choppy amid ongoing 3Q17 reporting season and FBMKLCI index rebalancing exercise on 30 Nov.

• Closed positions: In the wake of sluggish market sentiment and weakening technicals, we had squared off our positions in Sunway (1.2% gain), Destini (3.1% loss), Huaann (8.6% loss) and DRB Hicom (2.3% loss) yesterday.

Source: Hong Leong Investment Bank Research - 16 Nov 2017