Market Review

• The MSCI Asia Pac index posted its 6th straight gains to advance 1.47 pts at 178.0 in quiet trade due to market holidays in China (reopens on 22 Feb) and Hong Kong (reopens today), extending a relief rally from a selloff sparked by fears of creeping inflation and higher borrowing costs. Overall, traders waded back into the market for bargain hunting amid signs of stability after the VIX nosedived 61% from 50.3 (6 Feb peak) and 33% wow to close at 19.46 last Friday.

• Tracking higher regional markets, KLCI rallied 19 pts to 1857.3 (lifted by heavyweights such as PETGAS, IHH, HLFG, GENTING and CIMB) as sentiment was boosted by a rebound in RM and crude oil prices coupled with last week’s strong 4Q17 GDP data. Market breadth was bullish with 824 gainers against 193 losers, as traders flocked into small cap & lower liners during the 1st trading day of the lunar year.

• Dow was closed overnight in observance of President’s Day holiday but the Dow mini futures eased 59 pts after rallying 4.4% wow. As the calendar is light on economic news this week, focus is on the Fed’s Jan FOMC meeting minutes (due on Wed) and the speeches by several Fed officials to gauge the Fed’s views on the rate outlook and any potential policy changes under the new administration.

Technical View

Bullish indicators pointing further uptrend

• After the 4.5% slump from a high of 1880 (2 Feb) to a low of 1796 (6 Feb), KLCI staged a solid 3.4% or 61 pts to end at 1857.3. Given the bullish technical readings, KLCI is likely to refill the 1857-1863 gap down (5 Feb) soon. A successful breakout above 1863 will push KLCI higher towards 1872 (upper Bollinger band) and 1880 levels. Conversely, a fall below 18iate supports are 1828 (38.2% FR)-1815 (23.6% FR). A decisive fall 1841 (20d SMA) will witness a resumption of more pullbacks towards 1815-1827 supports.

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 a combination of solid US economy and corporate earnings growth and moderate inflation. 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. Immediate resistance is near 25.6k while support falls on 24.0k levels.

• After the holiday-shortened week, positive sentiment resumed with KLCI inching towards 1857-1863 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, any negative surprises from ongoing Feb reporting season and uncertainty over the upcoming GE14 could trigger imminent profit taking pullback.

Source: Hong Leong Investment Bank Research - 20 Feb 2018