POSITIVE TURN IN CRUDE OIL, LOCAL BARGAIN HUNTING, EUROPE MONETARY EASING AND HOPES FOR UPBEAT GLOBAL ECONOMIC DATA PROVIDE BULL CAMP WITH EARLY EDGE

Following the sharp reversal of the global stocks (MSCI All World & FTSE All World up 2.1% & 2.3%), we expect the local index, FBMKLCI to continue rebound driven by a round of fresh bargain hunting interest, positive economic data and higher expectation of monetary easing in Europe. We note that the whole global stocks (MSCI All World, FTSE All World +1.2% & +1.1%) has broken a four-day losing streak and closed marginally higher, helped by gains in USA, European stocks and Asian market. A weak Bursa start to 2015, coupled with consensus brokerage forecasts for an 8% earning growth in 2015 is seen as a buying opportunity, which contributes an added source of support for Bursa this week. European economic data showed stronger retail sales and higher unemployment figures. Highly anticipated Euro zone inflation figures also came in softer, with a negative headline figure which become a validation for the ECB to pursue more aggressive stimulus measures as early as this month. An added level of support comes on positive USA job prospects with ADP private sector hiring data showing improvement. The local benchmark was aided by a positive shift in outside market sentiment. Ideas that cheaper crude oil pricing could boost corporate profitability and that the recent slide in equities has them cheaper relative to bonds should be a strong catalyst for near term fund rotation. We believe Asia-Pacific equities (who are most sensitive to oil downside) rebounded strongly from a three-week low after oil prices showed signs of finding a floor near 48 level. Prospects that the crude oil market could be stabilizing, a general trend of improving US economic data and hopes for an upbeat private sector hiring report give the bulls an added source of cover. On the technical front, FBMKLCI move back above 1720 combined with a 7% drop over the last three straight month offers the bull camp hopes for a larger corrective bounce to a possible target of 1770. The latest bounce reversal gives the market a bullish tilt and therefore could see more short term upside follow-through ahead. Despite that, FBMKLCI remain under the 20-day, 50-day and 200-day moving average which indicates the trend is cautiously down on all time frame. Technical indicators such as RSI, MACD and Stochastics are pointing lower suggesting more downside if support levels are taken out. The next area of resistance are spotted around 1770 and 1800, while major support hits today at 1700 and below there at 1680. We must iterate the local earnings growth for 2015 of 8% (excluding MAS, which is being privatized) is still positive for broad market on the back of the (1) robust Malaysian and regional economies (2) signs of continuing improvements in the USA economy that help Malaysian exports (3) huge domestic liquidity (4) prospects of upgrade for Malaysia by ratings agencies (following prudent 2015 Budget, subsidy rationalisation and fiscal consolidation) (5) falling oil price (while translating into lower revenues to the government, also means lower subsidy bills and lower inflation) (6) consolidation in the local banking sector (which showcase synergistic benefits from the merger among CIMB, RHB Capital and MBSB) and lastly (7) the upcoming of bigger mega IPOs in 2015 such as Malakoff, Iskandar, Medini, Weststar, 1MDB, Sime Auto, Sunway Construction will be supportive for longer term investors to invest in Bursa Malaysia. Traders therefore should buy near support and use any dips to position for better year ahead. On the news front, five headlines will catalyse Bursa market next week which include (1) Amanah Raya REIT buying Comintel Glenmarie land for RM30 mil, Brahim Bhd to invests RM95 mil in Burger King franchise (2) Axis Reit to raise RM288.4 mil from placement (3) British Columbia approval of a liquefied export terminal for Petronas LNG project (4) Kian Joo Bhd to sell business for RM1.5 bil and (5) Sona Bhd gets SC approval to acquire UK-listed Salamander Energy asset. Strategy-wise, our TOP FIVE picks amidst the downside correction are (1) WCT in the construction and infrastructure sector on expanding order book (2) TNB under the utilities banner on tariff hike/energy reform (3) AirAsia which is expected to be in a recovery mode from falling oil price within the transportation industry (4) Kossan Rubber which is expected to capitalize on strong demand in the rubber glove segment on falling ringgit and (5) Maybank for its quality assets and attractive 5.6% dividend yield amidst the defensive broad market sentiment.

Dato' Dr Nazri Khan

Head of Retail Research

Affin Hwang Investment Bank

@ President, Malaysian Association of Technical Analyst (MATA)

03-21458581 / 019-6647975

nazri.adam@affinhwang.com