Market Review

• Tracking record high closings in NIKKEI (+1%) and HSI (+1.8%), most of the Asian markets rebounded from Monday’s selloffs as sentiment was fuelled by over 200 pts rally in Dow mini futures. The positive optimism was driven by an expanding U.S. economy, growth in corporate profits and enthusiasm over the Trump administration’s tax cuts and other business-friendly policies.

• KLCI fell as much as 7.4pts intraday to 1818.6 amid heavy profit taking. However, the index managed to recoup the losses and inched up 0.12-pt to end at 1826. Despite the gains, broader market sentiment was negative with 324 gainers versus 765 losers, as heavy profit taking consolidations on lower liners and ACE stocks saw trading volume jumped 21% to 6.53bn shares but total transaction only gained 1.1% to RM3.37bn.

• In early trade, Dow surged 283 pts to a fresh record high at 26086 as 4Q17 season got off to a strong start following upbeat results from UnitedHealth and Citigroup. However, the rally petered out with the index easing 10 pts to 25792 as commodities producers and industrial shares took a hit with oil and metals in decline. Sentiment was also weighed down by ongoing Congressional talks to avert a government shutdown on Friday.

Technical View

Profit taking well-absorbed

• As anticipated, KLCI experienced a profit-taking consolidation yesterday to neutralize overbought momentum but overall selling pressures were relatively well-absorbed. As KLCI is still holding well above 10d SMA or 1818, the index is envisaged to retest 1830-1840 hurdles after a brief consolidation, supported by the hammer pattern and overall positive indicators. Conversely, a decisive close below 1818 and 1810 (23.6% FR) would derail this bull run and send the index down towards 1790-1800 next.

Market Outlook

• In the near term, Dow’s uptrend could sustain on the back of positive tax reform and bullish outlook of a synchronized growth in global economy coupled with stellar corporate earnings growth. However, near term weakness is spotted following the sharp reversal overnight after hitting above our envisaged 26.0-26.3k resistances. Primary uptrend remains intact unless key supports near 25.0-25.3k is violated.

• Given the firm Ringgit and crude oil prices, healthy macro developments and the resumption of foreign buying supports, sentiment on the local bourse could still stay positive, despite interim consolidations, as KLCI is expected to play catch-up with its regional peers due to its laggard status.

• Closed position: Yesterday, we squared off our position in BHIC (1Q18 stock pick) at RM2.12, generating a return of 15.8%.

Source: Hong Leong Investment Bank Research - 17 Jan 2018