GLOBAL STOCKS AT RECORD HIGH, RINGGIT STEADY, OIL PRICE PERKS UP, FED RATES HIKES ON HOLD, BNM OPR FLAT, FBMKLCI TO REBOUND HIGHER
Following the bullish performance of the global stocks, we expect FBMKLCI to stage further rebound driven by strong Wall Street performance, Federal Reserve dovish statement, steady ringgit and recovering oil price. We note that global stocks have touched record highs (FTSE All World and MSCI All World) amid renewed optimism that the Federal Reserve would maintain a gradual path of policy normalisation, while the ringgit steadied above the crucial 4.300 level. Oil prices also rose for a fourth successive session, with Brent attempting to establish a foothold above near USD50 a barrel level. At the same time, Ringgit also hovered around a 1-month high against USA dollar following the Bank Negara decision not to raise interest rates. Wall Street traded higher with the Dow & Nasdaq Index hitting another record closing high, buoyed by technology and financial shares after a string of bullish corporate results. From here, expect we follow-through buying momentum, with a clear path for Dow Jones and Bursa Malaysia towards 22000 and 1780 pyschology level respectively.
On the international front, more upside should persist with delay in Fed rates hike, less tension over the geopolitics in North Korea, firmer oil prices and positive economic data to strengthen market tone. The biggest external catalyst will possibly come from the impending Saudi Aramco listing in the London Stock Exchange. Following Theresa May, UK Prime Minister visit to Saudi and their incentives to lure the world largest oil producer IPO , there are high probability that London may open door for Saudi Aramco listing in the near future which will be a boost to global oil sector play.
On the domestic front, local market should cheer from three positive news : (1) moderating inflation (2) stronger Industrial Production Index and (3) accommodative Bank Negara overnight policy rates. We are encouraged that Bank Negara has decided to maintain OPR at 3.00%. With the announcement, BNM has left OPR unchanged for 15 consecutive months lending support to the economy and broad market sentiment. Further, Bank Negara sees increasing upside to the domestic economy, particularly as global growth appears to be more synchronous driven by higher industrial activity and global trade. This is supported by Malaysia’s Industrial Production Index (IPI) which rose by 4.6% yoy in May (+4.2% yoy in Apr), supported by strong growth in the manufacturing and electricity sectors. The threat of elevated inflation has largely receded with the decline in domestic fuel prices. Bank Negara projects that global cost-push factors will recede, leading to a more subdued 2H17 overall inflation. While local inflation may tick up from a more robust domestic demand, they expect core inflation to remain contained overall. At this point, we believe that BNM will likely maintain a neutral OPR trajectory of 3.00% for the rest of 2017 as they avoid disrupting growth catalysts while dealing with the falling inflation levels.
On the technical front, the local stocks should grind higher following KLCI test to overtake 1750 support level. Most daily oscillators are at oversold situation suggesting an oversold rebound should appear. The market close remains below the 20-day, 50-day and 200-day moving average suggesting overextended downside trend across all time frames. Given FBMKLCI oversold situation and the series of positive domestic catalyst, we should see slow buying interest and stocks should continue to drift higher. Immediate support stays at the 100-day moving average at 1750 followed by support at 1730, the major low level in April, while crucial uptrend support is from the 200-day moving average at 1,700. Immediate resistance for the index stays at the 50-day moving average 1770 followed by the recent psychological peak of 1800. Strategy wise, given that FBMKLCI has gained 7.3% year to date, the best annual gain since 2013, traders should accumulate on temporary weakness, capitalize on stronger ringgit and ride on upturns in economically-sensitive sectors. While conservative investors may buy our Top Ten USA Stocks APPLE MSFT AMAZON EA NVDA SBUX EBAY FB MCD JOHNSON and Top Ten Featured Bursa Stocks i.e. UNISEM, GTRONIC, INARI, TIMECOM, SUNWAY, ECONBHD, ELSOFT, WILLOW, AEMULUS CAREPLUS., aggressive bulls might consider buying index futures on dips toward 1750, positioning for a larger jump to all time high of 1800.