The FBM KLCI could stage a near-term technical rebound towards the 1,685–1,700 region, supported by easing US Treasury yields, softer oil prices and oversold conditions, although the broader market remains entrenched in a downtrend, according to Hong Leong Investment Bank (HLIB) Research.
The benchmark index fell 4.5 points to 1,674.7 in the previous session, bucking gains across most Asian markets as elevated US bond yields and oil prices, expectations of further US Federal Reserve tightening and what HLIB described as domestic political uncertainty weighed on sentiment.
Trading volume increased 7.8% to 3.60 billion shares worth RM3.26 billion, while market breadth remained negative despite improving to 0.69 from 0.46.
HLIB noted that the KLCI has resumed its decline 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.
At its latest close of 1,674.7, the index has moved firmly back into its descending channel, keeping HLIB’s near-term technical bias bearish.
The research house identified 1,655, the year-to-date low, as the first downside level to watch, followed by 1,639, corresponding to the 23.6% Fibonacci retracement level.
However, HLIB said oversold technical readings could provide room for a short-term recovery. A swift move back above 1,685, followed by the 200-day moving average around 1,702, would signal some stabilisation.
Further resistance is seen at 1,717, representing the 50-day moving average, and 1,731. A decisive break above these levels could shift attention back towards 1,753 and subsequently the year-to-date high of 1,771, it said.
The potential rebound follows a strong overnight Wall Street session, where the Dow Jones Industrial Average gained 0.61%, the S&P 500 rose 1.14% and the Nasdaq advanced 1.69%.
HLIB said investors moved beyond the Federal Reserve’s well-telegraphed 25-basis-point rate increase as longer-term US Treasury yields retreated and oil prices eased.
The US 10-year Treasury yield fell 7.1 basis points to 4.93%, while the 30-year yield declined 6.3 basis points to 5.29%, reducing valuation pressure on equities, particularly technology stocks.
Oil prices also eased from a recent peak near US$110 a barrel, providing additional relief to markets.
Despite the improving external cues, HLIB cautioned that any KLCI rebound could remain capped by a challenging operating environment.
The research house highlighted risks from a higher-for-longer cost environment, possible second-half earnings disappointments, the forthcoming expansion of the KLCI to 50 constituents and domestic political uncertainty.
In market flows, local retail investors remained the largest net buyers for a fourth consecutive session, purchasing RM71 million of Malaysian equities.
Their cumulative net purchases stood at RM346 million over five sessions, RM1.0 billion month-to-date and RM560 million year-to-date.
Foreign institutions also recorded net buying of RM37 million during the session, although they remained net sellers of RM729 million month-to-date and RM5.19 billion year-to-date.
Local institutions, meanwhile, were net sellers of RM108 million, bringing their five-day net selling to RM198 million and month-to-date outflows to RM274 million. They remained net buyers of RM4.62 billion on a year-to-date basis.
HLIB said the combination of Wall Street’s rebound, softer oil prices, declining bond yields and oversold technical conditions could support a short-term KLCI recovery, but a sustained improvement would require the index to break back above its key moving-average resistance levels.
