The FBM KLCI could remain under pressure in the near term as persistent foreign fund outflows, elevated oil prices and rising global bond yields dampen investor sentiment, according to Hong Leong Investment Bank (HLIB).
In its latest market outlook, the research house said the benchmark index remains trapped within a descending trading channel, with uncertainty over US interest rates and potential second-half corporate earnings disappointments limiting prospects for a sustained recovery.
HLIB expects investors to remain cautious ahead of developments in US-China trade relations and the tabling of Malaysia’s Budget 2027 on Oct 9.
The FBM KLCI declined 7.07 points, or 0.42%, to close at 1,676.43 on Wednesday, reversing part of the previous session’s rebound.
Profit-taking in selected heavyweights, including MISC, Sunway Medical, Petronas Chemicals, Hong Leong Bank, Gamuda, Axiata and Public Bank, weighed on the benchmark.
Market breadth weakened to 0.95 from 1.48, while trading volume declined 10.6% to 3.20 billion shares worth RM2.99 billion.
Foreign institutional investors resumed net selling, disposing of RM231 million worth of Malaysian equities.
This brought their net outflows to RM908 million for September and RM5.36 billion year-to-date.
Local institutional investors absorbed part of the selling pressure with net purchases of RM215 million, while retail investors recorded net buying of RM16 million.
HLIB noted that sustained foreign selling remains a significant factor affecting the local market’s ability to establish a more durable recovery.
From a technical perspective, HLIB said the KLCI remains below its long-term ascending trendline and within a descending channel, maintaining a bearish near-term bias.
The index previously advanced from its year-to-date low of 1,655 on June 29 to 1,753 on Aug 26 before retreating to 1,661.9 on Sept 21.
The subsequent rebound has yet to establish a sustained upward trend.
HLIB identified immediate resistance at 1,685, followed by the 200-day moving average at 1,701.
A recovery above these levels would strengthen signs of stabilisation, potentially opening the way towards 1,717 and 1,731.
On the downside, the research house placed major support at 1,655, followed by 1,639.
HLIB said global market sentiment has weakened following a sharp increase in US Treasury yields, driven by concerns over persistent inflation and further monetary tightening by the Federal Reserve.
Wall Street ended lower overnight, with the Dow Jones declining 0.68%, the S&P 500 losing 0.75% and the Nasdaq retreating 1.13%.
The research house said markets were pricing in a 68% probability of a 25-basis-point Fed rate increase at the Oct 28 Federal Open Market Committee meeting, compared with 48% a week earlier.
Elevated borrowing costs and oil prices could continue to weigh on corporate earnings and investor appetite for equities.
Domestically, HLIB highlighted potential second-half earnings disappointments, household affordability concerns and continued foreign fund outflows as factors that could constrain the KLCI.
The research house also cited uncertainty surrounding the upcoming Melaka state election following the dissolution of its legislative assembly on Sept 23, alongside market attention on Budget 2027.
HLIB expects the benchmark index to remain in a consolidation phase until there is greater clarity on global interest rates, geopolitical developments and domestic economic policy.
