Profit-taking activities are expected to emerge following the recent strong market performance. With the recently announced business-neutral Budget 2016 coupled with uninspiring Crude oil prices and struggling Ringgit, we anticipate the benchmark FBMKLCI to trade at 1,685–1,730 range with downside bias this week. While the dovish signals from the European Central Bank (ECB) may continue to provide some underlying support to the market, it also implied that the region’s economy still remains in the woods; thus, suggesting a challenging time ahead. Portfolio-performance-wise, we had a mixed week with GROWTH Portfolio being the only portfolio recording negative weekly return. Nonetheless, our portfolios still outpaced the benchmark index by 554-2,584bps on YTD basis.

A healthy pull-back is expected. We expect healthy profit-taking activity to kick-in following the recent strong performance in the market. On top of that, the newly announced business-neutral Budget 2016 is unlikely to cheer the market, in our view. Meanwhile, the U.S. Fed has scheduled their second last FOMC meeting for the year on 27th-28th this week, where the market is expecting the monetary policy to remain status quote with the interest rate staying at 0.25%. Technically-speaking, we see immediate resistance at 1,720 and 1,730/35 next. On the downside, support levels are seen at 1,700 and 1,690/85.

An early Christmas present from ECB. The global equities markets have generally cheered ECB’s decision last week, where the policy makers hinted, they may enact additional monetary stimulus in December to bolster the zone’s economy. Apart from that, the fairly better-than-estimated U.S. corporate quarterly results last week also helped to boost optimism. With the earning season gathering pace, investors are looking for more clues on the strength of the U.S. economy and the timing of interest rate hike. Mixed data in the U.S. and volatile financial markets have kept the central bank from any tightening measures last month and reduced expectations for an increase this year. Back home, the FBMKLCI held well above the 1,700-psychological level which went against the anticipation of a pull-back after a strong performance in the past two weeks. The FBMKLCI was traded within a tight range of 13 index-points to close at 1,710.93 (-0.34% WoW) last week despite the lacklustre Crude oil prices and weakening in Ringgit. In fact, the MYR has depreciated (against the USD) to as low as RM4.313 before gaining some lost grounds to close at RM4.238 (-1.4% WoW) last Friday at 5pm. Key index losers last week include SIME (-2.2%), CIMB (-2.0%) and AXIATA (-0.9%)

A mixed weekly performance. The strong earnings performance of TOPGLOVE has boosted sentiment on the sector which propelled all the players’ share prices to another 52-week’s high last week. HARTALEGA, being one of the industry leaders, has also benefited from the positive sentiment and rose 13% WoW to RM5.30, which boosted the THEMATIC portfolio fund higher by 10.3% WoW, extended its YTD gain to 18.87% (vs. FBMKLCI’s YTD gain of 0.13%). DIVIDEND portfolio, on the other hand, extended its YTD gain to 5.67% following a decent 3.08% weekly gain in fund value, thanks to the strong share price performance of BJTOTO (6.8% WoW). The GROWTH portfolio, meanwhile, performed in tandem with the overall broader market last week with its fund value lowered by 0.3%, narrowing its YTD gain to 25.97%. 

Source: Kenanga Research - 26 Oct 2015