Market Review

• The MSCI ASIA Pac (MXAP) index rose 1.44 pts or 0.8% to 174.6, amid firmer investors’ confidence on the back of Wall Street's recovery following stronger earnings. According to Reuters, the S&P 500, earnings are expected to increase 18.6% yoy in 1Q18, offsetting lingering concerns over trade spat between US & China.

• Despite higher Dow overnight and regional markets, KLCI eased 1.2 pts to 1,879.3 on profit taking after rallying from 1811.6 (4 Apr) to 52-week high of 1,885.1 (17 Apr). Trading volume decreased to 2.34bn shares worth RM1.97 as compared to Tuesday’s 3.09bn shares worth RM2.75bn while market breadth was negative with 285 gainers as compared to 617 losers.

• Broader US stocks gained amid ongoing strong 1Q18 earnings reports (estimated to grow c.19% yoy and over 80% of those companies topped sales estimates) and positive economic outlook in the latest Beige Book. However, the Dow fell 38 pts to 24,748, dragged by a 7.5% plunge in IBM amid disappointment in the company's forward-looking guidance. Meanwhile, broader market senitment was also boosted by energy shares as the WTI soared 2.9% due to a decline in U.S. crude inventories and sources signaled top exporter Saudi Arabia wants to see crude prices closer to US$100/barrel.

Technical View

Profit taking activities to neutralise overbought levels

• After surging 54.2 pts in 7 consecutive sessions, KLCI is envisaged to engage a brief profit taking pullback to neutralise its overbought slow stochastics oscillator. Having said that, we remain cautiously optimistic that KLCI to surpass all-time-high of 1,896 in the near term. Key supports are located around 1,863/1,860/1,853.

Market Outlook

• Dow outlook: We are sanguine that the sentiment could remain positive bias over the near term given the ongoing strong 1Q18 reporting season, aided by the positive economic outlook and easing concerns of a full-fledged trade war with China.

• KLCI outlook: On the local front, we expect KLCI to be well-supported by local and foreign institutional funds, which could scale towards new high post GE14 outcome as the dust settles, but small caps and lower liners likely to stay neutral as we think profit taking activities may emerge after the recent relief rebound.

Source: Hong Leong Investment Bank Research - 19 Apr 2018