The FBM KLCI is approaching a crucial technical support level of 1,660 points for the third time, however MBSB Research is anticipating a potential upside over the coming months despite continuing geopolitical tensions and elevated oil prices.
In its latest market outlook, the research house said the benchmark index had traded sideways between 1,660 and 1,760 points since the US-Israel-Iran conflict began in late February.
MBSB believes a sustained rebound towards the 1,760-point resistance level is possible if improving technical indicators are accompanied by easing oil prices, resilient domestic economic growth and a stable ringgit.
It said a bullish divergence, indicated by the Relative Strength Index (RSI) forming higher lows while the index tests support, alongside a positive turn in the Moving Average Convergence Divergence (MACD), could signal renewed buying interest.
MBSB identified a decline in Brent crude prices to US$80–US$85 per barrel as a potential catalyst for Malaysian equities, as lower energy costs could ease global inflationary pressure.
Brent was trading at around US$105.50 per barrel in the report.
The research house also pointed to Malaysia’s economic resilience, citing second-quarter GDP growth of 6.0% year-on-year, up from 5.4% in the first quarter, as a factor supporting investor confidence.
It added that the ringgit’s relative resilience against the US dollar could encourage foreign investors to return to Malaysian equities.
However, a decisive break below 1,660 points could expose the KLCI to further declines towards 1,640 points or the psychological 1,600-point level, MBSB cautioned.
Potential downside triggers include a fresh surge in crude oil prices, stronger global inflationary pressure and a more hawkish US Federal Reserve, which could prompt capital outflows from emerging markets.
Despite these risks, MBSB said it sees greater potential for a near-term market recovery and favours fundamentally sound stocks with double-digit expected price returns.
Its selected stocks include YTL Corporation, Gamuda, IJM Corporation, Inari Amertron, Johor Plantations and Genting Plantations.
