Market Review

• The MSCI Asia Pacific Index (MXAP) gained 0.7-pt to 173.4 (+28.4% YTD), spearheaded by higher closings in KOSPI, SHCOMP and HSI markets after Brent crude oil prices soared to two-year highs and stronger metal prices on better-than-expected Nov retail sales and industrial output in China.

• As anticipated, KLCI rallied as much as 10.1 pts to 1781.8 before narrowing the gains to 7.3 pts at 1779.1, led by gains in selected index heavyweights such as TENAGA, HLBANK, PMETAL NESTLE and PBBANK, underpinned by ringgit appreciation bias and oil price strength coupled with the window dressing activities. Trading volume and value improved 25% and 5.5% to 2.64bn shares worth RM2.1bn, respectively on the back of interests resumption in lower liners and ACE counters.

• The Dow logged its 71st record close in 2017 in light trading (Wall St will be closed on 1 Jan for New Year), soaring 63 pts at 24838 (YTD: +26%), led by gains in financials, energy and technology stocks. Sentiment was firm as expectations are growing that President Donald Trump’s administration will shift attention to US$1 trillion infrastructure-spending bill, which could deliver a further jolt to Wall Street buying after Republicans passed the most sweeping overhaul of the U.S. tax code in 30 years as well as a stopgap spending bill to keep the government funded into early 2018.

Technical View

To test 1785-1797 hurdles in the short term

• We remain cautiously optimistic of KLCI’s ongoing uptrend following the 1757 (200d SMA) and 1776 (76.4% FR) resistance breakouts, to challenge another hurdles at 1785 (5 Sep high) and YTD high of 1797 (16 June) territories. On the flipside, a decisive fall below 1757 could weaken ongoing upward momentum, triggering further selldown to 1740 (38.2% FR) levels.

Market Outlook

• On Wall St, while the overall technical outlook remains positive with its underlying uptrend still intact in anticipation of fiscal stimulus, corporate spending and additional US$1 trillion infrastructure-spending bill by the government, we do not discount the possibility of a temporary pause amid the formation of MACD dead cross. The ongoing uptrend will be disrupted if the support trend line near 24.2k is violated.

• Although trading activities are likely to remain lackluster on the last trading day of 2017 with market players sideline ahead of the year-end holidays, KLCI could still gain further grounds amid rotational buying interests in selected index heavyweights, supported by window dressing activities, positive vibes in RM strength and crude oil strength coupled with resilient domestic economy.

Source: Hong Leong Investment Bank Research - 29 Dec 2017