While oil prices continue to be the leading indication for the benchmark index, the upcoming Budget 2017 could provide some hints to the overall local market direction in October. On the macro scene, the upcoming US Presidential Election is a proverbial wild card and could push volatility higher should the outcome is less than favourable to the global economy. “Buy-on-Weakness” trading strategy remains our preferred strategy for now with an ideal buying zone set at 1,625 and below as well as a “Sell on Strength” at above 1,715 level. Portfolio-performance-wise, our THEMATIC and GROWTH portfolios managed to outpace the benchmark index in September while DIVIDEND YIELD portfolio suffered a loss, in tandem with the broader market performance.

All eyes on Budget 2017. While the local stock market trading sentiment is still dictated by crude oil price and forex movements, a fresh focus is on the upcoming Budget 2017 presentation with hopes of economic stimulus to uplift the market. A little further down the road, the US Presidential Election outcome would further determine its foreign economic policies which shape the landscape of the global economy. While all this is still up in the air, we continue to advocate our “Buy-on-Weakness” trading strategy with an ideal buying zone at 1,625 and below as well as a “Sell on Strength” level at above 1,715. Despite we expect the net FBMKLCI’s earnings growth rate to improve by 1.6%/7.2% for FY16E/FY17E (due to the lower base effect), there is room for earnings downgrade (espectially in the Oil & Gas, Plantations as well as Property sectors) as a broad-based earnings growth story is still missing.

Oil prices at play again. The rise in oil prices at the beginning of the month reignited some bullish spirit in the FBMKLCI, However, in less than two weeks, the Ringgit’s weakness against the USD expanded and correction in oil prices suppressed the growing sentiment. At the end of September, the FBMKLCI fell 25.51 pts or -1.52% to close at 1652.55, with 20 out of 30 of the index component stocks showing declines. The top three index leaders for the month were YTL (+6.55%), GENM (+2.48%) and KLK (+1.70%) while the laggers came from ASTRO (-7.46%), RHBBANK (-7.00%) and AMBANK (-6.83%). At Wall Street, stocks also appeared to slump in line with the declining oil prices towards the second week. The bears, however, started losing impetus following the favourable outcome from US FOMC meeting which send the DOW to its strongest quarter-ending performance of the year.

Portfolios are more resilient against benchmark. Although the benchmark index suffered some degree of correction towards the end of the month, our THEMATIC and DIVIDEND YIELD Portfolios were on stronger foothold against the market pressures to outperform the benchmark index. While the FBMKLCI index declined by 1.08% MoM and sent the YTD return to 0.04%, our THEMATIC portfolio managed to climb 2.50% MoM with a positive YTD gain of 0.51%, thanks to a better performance of PESTECH (+8.50%) as a result of positive projects news flow. Meanwhile, our DIVIDEND YIELD Portfolio slumped by 2.04% MoM due to the overall decline in stocks but was still able to outpace the benchmark index with a 4.07% return YTD. The GROWTH portfolio, on the other hand, inched higher by 1.8% MoM in September, narrowing the YTD loss to 0.29%.

Source: Kenanga Research- 12 Oct 2016