Market Review

• Most of the regional key indices closed lower for the session ahead of the FOMC meeting that will be concluded on Thursday Asian time, where most of the analysts are anticipating an interest rates hike from the central bank. The Shanghai Composite Index and Hang Seng Index declined 1.24% and 0.59%; respectively, while Nikkei 225 fell 0.32%.

• The Malaysia stock market ended on a bullish tone on the back of firmer buying support, coupled with stronger crude oil prices; the FBM KLCI rose 10.10 pts to 1,729.57 pts. Also, some consumer stocks such as Power Root and Dutch Lady trended higher ahead of the inclusion of Nestle into KLCI and the privatisation news of Oldtown.

• Wall Street rallied for another round of record highs as investors were optimistic on the tax reform progress coupled with the widely anticipated interest rates hike, which supported the run-up on banking stocks. The Dow and S&P500 surged 0.49% and 0.15%; respectively.

Technical View

Downtrend channel breached, next target at 1,735-1,740

• The FBM KLCI has formed a flag formation after 4 days of sideways trading, coupled with a downtrend channel breakout. The MACD Line is recovering towards the zero level, while the momentum oscillators such as RSI and Stochastics are trending higher as well. The FBM KLCI may retest the resistance of 1,735-1,740. On the flip side, support will be pegged around 1,710-1720.

Market Outlook

• In the US, the positive development on the tax reform and potential interest rates hike in the upcoming FOMC meeting, we believe that they will contribute to a positive tone in the stock markets. Also, we opine that the Dow is on an uptrend intact position and could challenge the 24,650 level over the near term.

• Similarly, sentiments on the local front have been turning more bullish with the inflows of foreign funds. Hence, we think the buying interest and window dressing activities could lift the KLCI higher after the breakout yesterday. Oil and gas stocks may attract interests as the Brent crude oil prices trading near the US$64 level.

• Trading Buy – AYS. AYS Ventures Berhad has two main business divisions, namely i) Trading division - diverse range of steel products and construction materials (contributed over 95% to operating profit); and ii) Manufacturing division - manufactures and trades pressed steel and fiberglass reinforced polyester sectional water tanks, steel purlin and wire products. Currently, AYS is trading at ~6.8x trailing P/E and 33% below its BVPS of RM0.65. AYS could turn into a short to medium term uptrend after the breakout yesterday, supported by the Tweezers bottom/hammer candlestick patterns as well as bottoming up indicators.

Source: Hong Leong Investment Bank Research - 13 Dec 2017