Market Review

• Despite Dow extending its winning streak to five days, Asian equities ended mixed as trading in the region was subdued with many markets shut for the Lunar New Year holiday. The MSCI Asia Pac index jumped as much as 1.76 pts to 177.77 intraday before finishing +0.6-pt at 176.56, rallying 3.52% wow.

• Tracking overnight 1% rally on Dow and improving KLCI technical landscape, KLCI gained 3.35 pts to 1838.3 (+18.5 pts wow) on a half-day session on 15 Feb after traded within a small range of 4.7 pts between an intra-day high of 1842.7 and a low of 1838.0 Market breadth was bullish with 544 gainers as compared to 213 losers.

• With investors’ confidence of US strong economy and corporate earnings growth coupled with optimism that the Fed will maintain a gradual approach in raising interest rates, the Dow surged as much as 232 pts to 25432. However, ahead of the US President’s Day on 19 Feb and after Special Counsel Robert Mueller announced the indictments of 13 Russians and 3 Russian organisations in a plot to interfere in the 2016 US Presidential election, the early rallies fizzled out to only a 19-pt gain at 25219. Despite the turbelance, the Dow still logged its 6th straight advances and surging 4.3% wow, its biggest one-week percentage rise since Nov 2016.

Technical View

Upward momentum to resume after CNY holidays

• After the 4.5% slump from a high of 1880 (2 Feb) to a low of 1796 (6 Feb), KLCI staged a strong 2.4% or 42 pts to end at 1838.3. Given the bullish technical readings, KLCI is likely to test higher today with immediate resistance near 1847-1850 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 zones.

Market Outlook

• Despite recent roller-coaster ride, we remain optimistic of Dow’s near term outlook amid Trump’s tax and spend boom coupled with US strong economy and corporate earnings growth. Nevertheless, choppiness will prevail amid concerns over inflationary pressures and spiking bond yields (which hit a 4-year high at 2.91% on 15 Feb before ending at 2.87% on 16 Feb) ahead of the 20-21 Mar FOMC meeting. Stiff resistance is near 25.6k while support falls on 24.0k territory.

• After the holiday-shortened week, positive sentiment on the KLCI may resume towards 1850 zones, tracking Dow’s recent robust rebound. Sentiment is likely to be boosted by RM and Brent oil strength coupled with Malaysia’s resilient economy. Nevertheless, ongoing Feb reporting season and uncertainty over the upcoming GE14 could dampen sentiments as there is a speculation that Parliament could be dissolved during the 1st session of the 6th Parliamentary meeting, which begins on 5 Mar till 5 Apr.

• Stock on radar-MRCB. Given its healthier balance sheet post rights issue coupled with the impending disposal of EDL should serve as a near term catalyst. Technically, the stock is ripe for a triangle breakout with upside targets at RM1.20-1.27 while supports fall on RM1.06-1.08. Cut loss at RM1.03.

Source: Hong Leong Investment Bank Research - 19 Feb 2018