Market Review

• Asian stock markets ended on a mixed tone on the final trading day as dollar slipped against most of the regional currencies, which led the Nikkei 225 down 0.08% as exports related stocks were mildly lower. Meanwhile, on the full year basis, Shanghai Composite Index and Hang Seng Index gained 6.6% and 36.0%respectively.

• On the local front, selected index heavyweights such as Sime Plantation and DiGi were lifted higher on the back of last minute buying support amid window dressing activities – the FBM KLCI rallied 17.71 pts to 1,796.81 pts (+9.4% yoy and marked the highest closing for the year). Market breath was slightly positive with 489 advancers vs. 468 decliners. Overall market traded volumes stood at 3.14bn worth RM2.77bn.

• U.S. equities retraced from the all-time-high on the final trading session on the back of softer volumes and all the S&P500 sectors ended in the negative territory. However, on the yearly basis, the Dow and S&P500 gained 25.1% and 19.4% respectively. Meanwhile, the dollar index trended lower by 9.9% for the year at 92.12.

Technical View

Uptrend intact with the trendline breakout

• The FBM KLCI surged strongly on the final trading day, surpassing the long term downward trendline at 1,783, forming a bullish closing for the year. The MACD Indicator was rising strongly above zero. However, the RSI and Stochastics oscillators are in the overbought region. We expect the key index to be capped around 1,800 as it may attract profit taking activities after a good run-up recently. Support will be anchored around 1,770, followed by 1,760.

Market Outlook

• In the US, we believe the recent rally in the final week of 2017 could poise for a retracement as the upside could be limited around 25,000 amid the overbought signals on both the RSI and Stochastics oscillators. Also, as most of the positive catalysts such as corporate tax reform and US GDP recovery have been priced in, investors will be focusing next on the US yield curve which is flattening over the past months.

• Similarly, on the local front, the uptrend rally on the FBM KLCI should continue after a short retracement as we believe the final trading session was pushed higher on the back of the window dressing activities and investors may look for opportunities to take profit. Nevertheless, we think O&G stocks will remain actively traded with the firmer trend in Brent crude oil above US$60. Also, small cap technology stocks are likely to trend higher following the strong rally in 4Q17.

Source: Hong Leong Investment Bank Research - 2 Jan 2018