Market Review

• Most major Asia indexes closed lower, pressuring export reliant companies, as the greenback continued to struggle following U.S. Treasury Secretary’s comment that a weak dollar is good for US. Sentiment was also amplified by trade war and rhetoric of protectionism concerns under Trump’s administration. Top losers were HSI (-1.2%), SET (-1.2%), NIKKEI (-1.1%) and STI (-1.0%).

• Bucking regional markets weakness, KLCI climbed 8.8pts at 1845.9, led by a rally in banking stocks following a 25 bps rate hike by BNM. The positive closing was also buoyed by the bullish RM and oil prices. Despite the headline gains, broader market sentiment was edgy after recent surge as trading volume decreased 12% to 2.96bn shares while market breadth was negative with 468 gainers as compared to 515 losers.

• The Dow logged fresh records, soaring 140 pts to 26393 but off intraday high of 26458. The rally was driven by recent batch of stronger-than-expected earnings (78% beat earnings expectations while 82% surpassed revenue estimates) and President Donald Trump’s dollar-supportive comments. Trump, in an interview with CNBC at the World Economic Forum’s said he expects the greenback to get “stronger and stronger” over time. Trump’s apparent endorsement of a firmer dollar helped the USD index to rebound from 3-year low of 88.4 and ended up 0.13% to 89.3.

Technical View

Upside bias to test 1850

• Despite overbought positions, KLCI’s uptrend remains intact to test immediate resistance at 1850, as it is still holding solidly above 10d SMA (or 1831) and supported by bullish hourly chart. Conversely, a decisive break down below 1831 will derail current upward momentum, triggering potential retracement towards 1810-1820 next.

Market Outlook

• We remain cautiously optimistic that Dow’s primary uptrend to test 26.5-27k territory could sustain (with interim healthy profit taking pullback), underpinned by the positive implications from the new US tax policy, IMF’s bullish outlook of a synchronized global economic expansion, and stellar corporate earnings growth. Key supports are 25.5-26k.

• On the local bourse, given the Ringgit and crude oil prices strength, healthy macro developments and the resumption of foreign buying supports, sentiment on the local bourse could still stay positive to test immediate 1850 psychological resistance, despite expecting interim consolidations.

Source: Hong Leong Investment Bank Research - 26 Jan 2018