Market Review

• Asian markets maintained its upswing in the morning sessions amid Dow’s 1.5% rally overnight. However, most of the bourses pared their gains as caution lingered ahead of the U.S. inflation data tonight amid fears that a stronger-than expected reading on price pressures could trigger a fresh wave of selling.

• Despite an overnight rally in Dow, KLCI ended in a lackluster mode with a 2.9-pt gain. Overall sentiment was edgy due to an extended CNY holidays and GE14 uncertainty coupled with the ongoing Feb reporting season encouraged investors to lighten their positions, which saw volume decreased to 1.62bn shares as compared to Monday’s 1.80bn shares. Market breadth was barely positive with 495 gainers vs 409 losers.

• After correcting 12% from historical high of 26610 (26 Jan) to 23390 (9 Feb), the Dow managed to stage a 3rd straight gains to finish 39pts higher (from -181 pts intraday) at 24640 overnight. Overall, volatility levels remained elevated and all eyes are on the CPI report tonight amid concerns that a higher-than-expected data could spark another selloff.

Technical View

CNY break may cap upside

• After plunging 4.5% from a high of 1880 (2 Feb) to a low of 1796 (6 Feb), KLCI staged a 2% technical rebound to end at 1833 yesterday. Although technical indicators are on the mend, cautious sentiment ahead of the CNY break may restrict upside towards 1837 (50% FR)/1847 (61.8% FR) levels. Conversely, immediate supports are 1828 (38.2% FR)/1815 (23.6% FR). A decisive fall below 1815 will witness a resumption of downdraft towards 1796-1800 zones.

Market Outlook

• Technically, the rebound from recent Dow’s correction remains intact and it may revisit 25.0-25.5k over the near term with key supports at 23.5-24.0k zones. Nevertheless, choppiness will prevail and restrict any rebound beyond 25.5k as investors continue to digest the wild swings amid concerns over inflationary pressures and spiking bond yields.

• In the near term, sentiment on the local front may stay cautious and lacklustre amid an extended CNY holidays (Bursa Malaysia will close 15 Feb (2nd half) and 16 Feb) and ongoing Feb reporting season. Moreover, uncertainty over the GE14 could dampen sentiment as there is speculation that Parliament could be dissolved during the 1st session of the 6th Parliamentary meeting, which begins from 5 Mar to 5 Apr.

Source: Hong Leong Investment Bank Research - 14 Feb 2018