Market Review

• Asian equities were largely retreating from multi-year highs recently, in spite of another record-setting by Dow overnight. Sentiment was dampened by pullbacks in technology and export-reliant counters following disappointing earnings guidance from Samsung Electronics and the effect of stronger Asian currencies. Bucking the trend, HSI revisited its 10-year high to 34073 while SHCOMP also logged its 11M high at 3421.

• Tracking weaker regional markets, KLCI lost 4 pts to 1822.9 after traded within a range of 9.4 points between an intra-day high of 1830.6 and a low of 1821.3, bogged down by selling interest in heavy weight counters such as GENM, Astro, DIGI, HLBANK and MAXIS. Trading volume decreased to 5.75bn shares worth RM3.78bn as compared to Tuesday’s 6.48bn shares worth RM4.41bn. Market breadth was negative with 426 gainers as compared to 630 losers.

• Dow slid as much as 128 pts to 25257 before easing 16 pts to 25369 as traders kept an eye on U.S. bonds following an accelerated rise in the yield on the 10-year Treasury note, prompted by a report that China is considering halting purchases of U.S. debt. Sentiment was also dampened by media report that Canada is expecting President Donald Trump to announce an end to the North American Free Trade Agreement shortly, a risk that could shake up global growth and earnings prospects. Chipmakers also slumped amid disappointing earnings prospects from Samsung Electronics while banks rallied on the prospect for higher rates.

Technical View

Extended consolidation

• After rallying 7.7% or 132 pts from a low of 1708 (5 Dec) to a high of 1840 (9 Jan), KLCI ended lower for a 2nd day (2-day pattern of dark cloud cover), suggesting a potential retracement phase in action. We think near term stiff resistances are limited around 1840-1850 zones while supports will be at 1790-1810.

Market Outlook

• Wall St’s uptrend managed to sustain over past months on the back of tax reform, positive outlook of synchronized growth in global economy and favourable corporate earnings growth coupled with active share buy backs and capital expenditure. However, the recent spikes in bond yields could suggest potential range bound consolidation (24.8-25.5 levels) ahead of the 1Q18 reporting season, which will begin next week.

• On the local front, we expect further consolidation after KLCI hitting recent high at 1840. We believe the recent run-up likely to be overstretched as the key index has surged 114 pts since its trough on 5 Dec. Nevertheless, with the Brent oil prices approaching US$70/barrel, we may see extended trading activities on O&G counters.

Source: Hong Leong Investment Bank Research - 11 Jan 2018