Market Review

• Tracking the mixed performance on the US stocks, Asian stock markets ended another session on the sideways tone after House and Senate Republicans passed the tax bill. The Nikkei 225 inched up marginally by 0.10%, while Hang Seng Index and Shanghai Composite Index slipped 0.07% and 0.27%, respectively.

• After the rebalancing activities, stocks on Bursa Malaysia managed to recover its retracement on the back of the resumption of window dressing mode; the FBM KLCI ended higher at 1,746.63 pts (+0.56%). Market volumes stood at 2.53bn, which was slightly above the 100-day average volumes. Meanwhile, there were 5 advancers for every 4 decliners in the markets. Also, technology stocks such as UCREST and MQTECH within the ACE market were in the active list.

• Over in the US, despite the positive November existing home sales data (+5.6% to a seasonally adjusted rate of 5.81m units) from the National Association Realtors, Wall Street closed marginally lower after US congress passed the tax bill. The Dow and S&P500 slid 0.11% and 0.08%, respectively.

Technical View

Rebounding towards SMA200 on the back of buying support

• The FBM KLCI snapped a 3-day retracement with a bullish engulfing bar above the SMA50 level. Despite the MACD Histogram extended another down bar, we think the buying support has emerged and may spur the trading interest on KLCI index heavyweights higher; the key index may retest the SMA200 (1,756), followed by the next resistance of 1,760. Meanwhile, support will be anchored around 1,720-1,730.

Market Outlook

• In the US, we think the major indexes would take a short breather after the US has approved the largest tax overhaul in 30 years, which will be reducing the corporate tax rate from 35% to 21%. However, we believe the pullback will be mild as reducing the corporate tax could boost companies’ earnings and would spur US corporates to increase capital expenditure, contributing to higher share performance, eventually.

• Meanwhile, stocks on the local front are likely to head higher on the back of resumptions of buying support from foreign funds and we believe higher beta stocks will be focused during the window dressing period. Also, traders could look out for opportunities within the small cap technology stocks for short term trading ideas.

Source: Hong Leong Investment Bank Research - 21 Dec 2017