The FBM KLCI is expected to remain in consolidation mode in the near term as investors contend with elevated oil prices, rising US Treasury yields, persistent foreign outflows and uncertainty ahead of the US Federal Reserve’s Sept 16 policy meeting, according to Hong Leong Investment Bank (HLIB).
HLIB said the benchmark index remained technically range-bound after ending at 1,705.5 points, just above the key 1,700 psychological support level.
The KLCI fell 8.8 points in the latest session, dragged by selling in Public Bank, RHB Bank, Press Metal, Telekom Malaysia, 99 Speed Mart, MR DIY and Nestlé Malaysia, in line with weaker performances across Wall Street and regional markets.
Trading volume rose 8.7% to 3.99 billion shares, slightly above the five-day average of 3.94 billion shares, while turnover increased to RM3.14 billion from a five-day average of RM3.04 billion.
Market breadth weakened to 0.81 from 1.04 previously, reflecting broader selling pressure.
Foreign institutional investors remained net sellers to the tune of RM12 million, bringing month-to-date outflows to RM593 million and year-to-date net selling to about RM5.0 billion.
Retail investors were also net sellers of RM4 million during the session, although their month-to-date position remained a net inflow of RM653 million.
Local institutions, meanwhile, turned net buyers with purchases amounting to RM16 million, taking their year-to-date net buying to RM4.84 billion.
HLIB said the local market continues to face pressure from external developments, particularly the sharp rise in global crude oil prices and US bond yields.
Brent crude surged 6.3% to US$108 per barrel amid heightened Middle East tensions, fuelling concerns that prolonged disruptions to energy supply could keep global inflation elevated.
At the same time, the US 10-year Treasury yield climbed 12 basis points to 4.96%, close to a three-year high, after stronger US core producer price inflation renewed expectations that the Federal Reserve could raise interest rates by 25 basis points at its Sept 16 meeting.
Markets are currently assigning about a 70% probability of a Fed rate increase, with the upcoming US consumer price index data on Sept 11 expected to provide further signals on the interest-rate outlook.
HLIB cautioned that elevated US yields could continue to encourage capital rotation away from emerging markets, including Malaysia, and prolong foreign fund outflows.
The brokerage also highlighted domestic risks, including possible second-half earnings disappointments as companies contend with a higher-for-longer cost environment.
Valuation concerns surrounding the KLCI and emerging political uncertainty ahead of the next general election could also cap market upside, it said.
From a technical perspective, the index has pulled back after rallying about 95 points from its year-to-date low of 1,655 on June 29 to a high of 1,753 on Aug 26.
The benchmark subsequently fell to around 1,696 before moving sideways.
HLIB identified immediate support at 1,700, followed by 1,685, which represents the 50% Fibonacci retracement level.
A decisive break below these levels could expose the index to further downside towards 1,655, followed by 1,639.
On the upside, a sustained move above the descending trendline and 1,730, corresponding to the 76.4% Fibonacci retracement level, would weaken the current bearish bias and open the way towards 1,753 and the year-to-date high of 1,771.
HLIB expects the KLCI to remain within a broad 1,685–1,730 range in the immediate term as investors await clearer direction from the Federal Reserve, US inflation data and developments in the Middle East.
