Hong Leong Investment Bank (HLIB) expects the FBM KLCI to remain in a risk-off consolidation phase ahead of Budget 2027, warning that persistent foreign selling, elevated bond yields and geopolitical risks could continue to weigh on sentiment despite deeply oversold market conditions.
The benchmark index rose as much as 9.6 points to 1,640.5 before surrendering most of its gains to close just 0.9 point higher at 1,631.8.
Market breadth remained cautious, with 598 decliners against 564 gainers, while investors continued to position ahead of Budget 2027 and developments surrounding the Melaka state election.
Foreign institutions extended their net selling streak to a ninth consecutive session, recording net outflows of RM79 million. This brought October-to-date net selling to RM335 million and year-to-date foreign outflows to RM6.48 billion.
Local retailers were also net sellers at RM30 million, while local institutions remained the main source of support, recording net purchases of RM109 million for a fourth straight session.
HLIB said the KLCI has decisively broken below the 1,655-1,667 support zone and its long-term uptrend line, confirming a Triple Top breakdown and turning the technical outlook bearish.
The index is trading below all key moving averages, while the Moving Average Convergence Divergence indicator remains firmly negative.
Its Relative Strength Index stood at around 28, signalling oversold conditions and raising the possibility of a technical rebound, although HLIB said there is still no clear reversal signal.
Immediate resistance is now seen at 1,667-1,680, followed by the 1,705-1,720 range.
Failure to reclaim the 1,667-1,680 area could keep selling pressure intact and expose the KLCI to further downside towards 1,624, followed by 1,598 and potentially the Triple Top objective of 1,578.
HLIB expects elevated oil prices, high global bond yields and persistent foreign selling to remain major headwinds.
Domestically, the research house is forecasting Malaysia’s GDP growth to moderate to 4.7% in 2027 from 5.3% in 2026, while household affordability pressures, potential earnings disappointments and higher-for-longer costs could also weigh on the market.
The forthcoming expansion of the KLCI from 30 to 50 constituents, planned in two phases in December 2026 and June 2027, is another development investors will need to digest.
HLIB also said political developments surrounding the Melaka election could contribute to near-term uncertainty as parties negotiate electoral arrangements.
Asian markets were generally firmer after September US employment growth came in at just 29,000 jobs compared with expectations of 130,000, sharply reducing expectations of an October Federal Reserve rate increase.
HLIB said the probability of the Fed holding rates rose to about 78% from 22% a week earlier.
Japan’s Nikkei 225 gained 2.4%, while Taiwan’s TWSE surged 3% on renewed optimism surrounding artificial intelligence-related stocks.
Wall Street also advanced for a third consecutive session, with the Dow Jones Industrial Average adding 0.18%, the S&P 500 rising 0.67% and the Nasdaq gaining 1.05%.
Despite improving global risk appetite, HLIB said the Malaysian market still faces significant technical and external headwinds, suggesting that any near-term rebound may remain fragile until the KLCI can recover above its key resistance levels.
