Market Review

• Most Asian markets closed marginally higher despite extension of the US government shutdown for the 3rd day, amid cautious optimism that the impasse will be eventually dissolved based on historical precedence and investors saw limited economic fallout from the standoff. Sentiment was also lifted by IMF’s move to raise 2018 global growth forecast to 3.9% (from 3.7% previously) and said global growth will accelerate to the fastest pace in seven years as U.S. tax cuts spur businesses to invest.

• Tracking higher regional markets and ahead of the Invest Malaysia event (23 & 24 Jan), coupled with BNM meeting on 25 Jan, KLCI gained 4.3 pts to 1833.2. Trading volume increased by 21% to 4.62bn shares worth RM2.87bn while market breadth was positive with 520 gainers as compared to 502 losers, with interests mainly focus on ACE stocks and lower liners.

• After the Senate approved a procedural bill that would allow the government to end a multiday shutdown, the Dow rallied 143 pts or 0.6% overnight to another record high at 26215. Sentiment was also boosted by IMF’s bullish upgrade on US economy in 2018 to 2.7% (from 2.3% previously) and the ongoing 4Q17 results, with 68% of the S&P 500 companies reported surpassed earnings expectations, while 85% of those companies beat sales estimates.

Technical View

To re-challenge 3-year high at 1840

• Despite interim overbought consolidations, market undertone remains positive with overall selling pressure relatively well-absorbed. As KLCI is still holding well above 10d SMA (or 1828), the index is envisaged to retest 1840 hurdle in the short term, supported by the bullish hourly technical. Conversely, failure to hold at 10d SMA support will derail this uptrend and send the index down towards 1800-1810 next.

Market Outlook

• Dow’s uptrend could sustain, underpinned by easing concerns on US government shutdown, investors refocus on the positive implications from the new US tax policy, IMF’s bullish outlook of a synchronized global economic expansion, and stellar corporate earnings growth. Primary uptrend to test 26.5-27k remains intact unless key 10d SMA support near 25.7 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 against regional peers due to its laggard status.

Source: Hong Leong Investment Bank Research - 23 Jan 2018