The FBM KLCI could remain under pressure in the near term as investors weigh the upcoming US Federal Reserve decision, elevated oil prices, rising bond yields and persistent foreign selling, according to Hong Leong Investment Bank (HLIB) Research.
The benchmark index fell 19.3 points to 1,686.2 in the previous session, with selling concentrated in heavyweights including IHH Healthcare, CIMB, Hong Leong Bank, Maybank, Public Bank, RHB Bank and Press Metal.
Trading volume declined 10.3% to 3.58 billion shares, below the five-day average of 3.79 billion shares, while traded value stood at RM3.24 billion.
Market breadth weakened to 0.53 from 0.81, reflecting broader selling pressure.
Foreign institutions remained net sellers, recording RM207 million in net outflows for the day. This brought five-day foreign selling to RM160 million, month-to-date outflows to RM800 million and year-to-date net selling to RM5.26 billion.
Retail investors and local institutions absorbed part of the selling, with net buying of RM155 million and RM52 million respectively.
HLIB said rising US Treasury yields could accelerate capital rotation away from emerging markets, including Malaysia, particularly if the Federal Reserve signals a more hawkish stance.
From a technical perspective, HLIB said the KLCI has weakened materially after rallying from its year-to-date low of 1,655 on June 29 to an intraday high of 1,753 on Aug 26.
Since then, the index has retraced about 67 points to around 1,686.7, falling below several key moving averages and moving decisively back into its downtrend channel.
HLIB said a break below 1,685 would revive downside risk towards 1,655, followed by 1,639.
Conversely, if the index manages to hold above 1,685, it could stage a technical rebound towards 1,701, where the 200-day moving average lies, followed by 1,716.
A sustained break above 1,731 would be needed to negate the current bearish technical setup, potentially opening the way towards 1,753 and then the year-to-date high of 1,771.
HLIB said the external backdrop remains challenging.
Wall Street managed to snap a four-session losing streak last Friday after oil prices eased from recent highs, but US inflation data continued to raise expectations of another interest-rate increase.
Hotter-than-expected August core consumer inflation pushed market expectations for a 25-basis-point Fed hike this week to around 87%, from 59% a week earlier.
Brent crude, meanwhile, rose towards US$107 per barrel after gaining almost 9% last week, as geopolitical tensions in the Middle East disrupted key energy routes.
HLIB said elevated oil prices could reinforce global inflation concerns and keep interest rates higher for longer, adding further pressure to risk assets.
At home, HLIB said sentiment could also be affected by expectations of weaker second-half corporate earnings under a higher-for-longer cost environment.
The research house also flagged the overhang from the planned expansion of the KLCI to 50 constituents and emerging political uncertainty surrounding the timing of the next general election.
Taken together, HLIB expects the KLCI to remain in consolidation mode with a downside bias, unless external risks ease and the index can reclaim key technical resistance levels.
