Market Review

• Brushing off the overnight 1% fall in Dow, the MSCI Asia Pac index inched up 0.55 pts to 177.16 in choppy trade as investors await the Fed’s Jan FOMC meeting minutes and a slew of speeches by Fed officials this week.

• Tracking higher regional markets, KLCI gained 2.2 pts (helped by supports on index-linked stocks i.e. RHBBANK, YTL, DIGI, HLBANK and PPB) in a volatile session after traded within a range of 8.3 pts between an intra-day high of 1860.4 and a low of 1852.1. Trading volume increased to 2.3bn shares worth RM2.53bn as compared to Tuesday’s 2.28bn shares worth RM2.1bn, with keen interests seen in small/mid cap and penny counters. Market breadth was positive with 605 gainers as compared to 330 losers.

• The Dow extended a fall for a 2nd day with a 167-pt decline to 24797 after rising as much as 303 pts earlier in the session. The Jan FOMC minutes showed the Fed sees increased economic growth and an uptick in inflation as justification to continue to raise interest rates gradually. Expectations for a 0.25% hike at the Fed’s next meeting in March 20-21 are currently 93.5%, according to Thomson Reuters data. The news pushed the USD index 0.44% higher to 90.03 and sent the 10-year Treasury note to a fresh four-year peak of 2.95%.

Technical View

Sideways consolidation to prevail

• After a strong 3.3% rally from a low of 1796 (6 Feb) to 1856 yesterday, KLCI is expected to trend sideways amid ongoing Feb reporting season with immediate stiff resistance near the 1857-1863 gap (5 Feb). Only a successful breakout above 1863 will push KLCI higher towards 1872 (upper Bollinger band) and 1880 (YTD high) levels. Conversely, a fall below 1844 (20d SMA) will ignite selling pressures towards lower supports at 1828 (38.2% FR)-1815 (23.6% FR) levels.

Market Outlook

• Following a 2-day slide of 422 pts, Dow’s near term outlook has turned mildly negative after firmly below the 20d SMA support near 25.3k. Choppiness will prevail amid concerns over inflationary pressures and spiking bond yields (which closed at 4-year high of 2.95%) ahead of the 20-21 Mar FOMC meeting. Immediate resistance is 25.6k while support falls on 24.0k levels.

• While sustained buying on selected blue chips heavyweights continue to cushion any sharp fall in KLCI due to negative spillover from Dow’s slump, keen profit-taking and selling interest could check gains on the broader market. Moreover, any negative surprises from ongoing Feb reporting season and uncertainty over the upcoming GE14 could induce further profit taking consolidation.

• Trading idea-YONGTAI. We like the stock unrivalled competitive advantages arising from its unique tourism appeal and synergistic property product offerings, current valuation of 9.4x FY19 PE is grossly unjustified, supported by FY18-20 EPS CAGR of 97% amid its value-adding Impression City and Encore Melaka coupled with riding on booming Chinese tourism. Techical upside targets are RM1.61-1.83 while supports fall on RM1.43-1.48.Cut loss at RM1.41.

Source: Hong Leong Investment Bank Research - 22 Feb 2018