PETALING JAYA: Analysts believe the FBM KLCI has entered a period of near-term consolidation with a slight downside bias, although they acknowledge that the bourse’s medium-term outlook remains constructive.
Market researchers hold the view that, in the immediate future, the direction of the country’s premier index will be primarily driven by external factors rather than domestic economic fundamentals.
The FBM KLCI rebounded from an intraday trough of 1,655.28 yesterday, but still closed marginally lower than last Friday’s 1,665.91. A total of 2.71 billion shares worth RM2.14bil were traded, with gainers trumping losers by 514 to 364, while 714 counters remained unchanged.
The local bourse’s performance coincided with a mixed showing from regional peers, as several major indices ended higher, including Japan’s Nikkei 225, the Hang Seng Index, the Shanghai Composite, Singapore’s Straits Times Index, and Taiwan’s Weighted Index.
Other Asian markets, however, closed in the red, including South Korea’s Kospi and Indonesia’s Jakarta Composite Index.
“There could have been some early jitters in the market following sporadic fighting in the Middle East over the weekend, but overall, the FBM KLCI has recovered commendably towards the evening,” said Vincent Lau, head of equity sales at Rakuten Trade.
“We observe that bargain hunting in tech stocks is a factor for the recovery, as well as improving sentiment with oil prices settling back near the US$70 per barrel level.”
Lau further told StarBiz that central banks are likely in no hurry to raise rates, as inflation is expected to moderate.
He pointed out that the release of US non-farm payrolls data this Friday will be closely watched across all equity markets.
From a domestic perspective, an analyst remarked that the lack of fresh catalysts and persistent foreign fund outflows are likely to keep sentiment subdued, while political risk premiums remain elevated ahead of the Johor (July 11) and Negri Sembilan (Aug 1) state elections.
This is pertinent amid speculation over an early general election, despite Parliament’s mandate running until February 2028.
IPP Global Wealth investment strategist Mohd Sedek Jantan observed that the FBM KLCI saw heavy selling pressure in the morning session yesterday, but pared much of its earlier decline as bargain hunting emerged in the afternoon, while the broader market painted a more constructive picture.
“Both the FBM 70 and FBM Small Cap indices closed higher, signalling that investors continued to selectively accumulate fundamentally strong mid- and small-cap stocks despite weakness in the heavyweight index,” he added.
Of note, Mohd Sedek said the standout performer domestically was the banking sector, with financial stocks rebounding strongly and providing the largest support to the FBM KLCI.
“The move reflects an ongoing rotation out of high-growth technology names into more defensive, valuation-supported sectors as investors rebalance portfolios following the recent rally.
“This shift in market leadership suggests investors are prioritising earnings resilience, attractive dividend yields, and stronger balance sheets amid an increasingly uncertain global environment.”
He added that if the momentum is sustained, such rotation could provide a firmer foundation for Bursa Malaysia, even as external headwinds continue to drive near-term market volatility.
Looking ahead, Mohd Sedek emphasised that market sentiment remains shaped by a combination of global macro and geopolitical developments.
“Investors continue to weigh the long-term earnings potential from artificial intelligence against rising cost pressures and increasingly demanding valuations, while also monitoring the fragile US-Iran ceasefire.
“Although tensions have eased, geopolitical risks remain elevated, supporting oil prices and reinforcing a cautious risk appetite across global financial markets,” he highlighted.
BIMB Securities Research concurred with Mohd Sedek and Lau, predicting that the market’s direction will remain largely dependent on external developments.
“The near-term direction now depends on external cues rather than domestic ones,” said the research house in a note yesterday, adding that it continues to favour domestically focused, cash-generative counters with limited exposure to global tech, and would treat further weakness as a chance to accumulate.
Additionally, Kenanga Research expects market sentiment to remain subdued despite the possibility of a short-lived technical rebound.
“In short, we expect the market’s cautious tone to persist this week, with a downward bias. Any technical rebound is likely to be short-lived unless broader sentiment improves,” it said.
The research house said investors will continue monitoring geopolitical developments following renewed US-Iran tensions, while the performance of US technology stocks remain a key determinant of market direction.
Technically, Kenanga Research identified immediate support for the FBM KLCI at 1,658 and 1,638, while resistance levels are seen at 1,673 and 1,694.
Meanwhile, UOB Kay Hian (UOBKH) Research believes the recent correction has not derailed the local market’s broader recovery trend.
“The recovery in the FBM KLCI last Friday could be perceived as hidden buying interest as selling pressure was well absorbed,” it said.
However, the brokerage cautioned that selling momentum has not yet fully normalised, with the relative strength index (RSI) still trading below the 50-point threshold, leaving the FBM KLCI vulnerable to further pullbacks.
In general, an RSI above 70 suggests that an asset may be overbought and due for a pullback or correction, while an RSI below 30 indicates that it may be oversold and due for a rebound. An RSI around 50 signals a balance between buyers and sellers, often indicating weak momentum.
UOBKH Research expects a gradual recovery over the medium term for the FBM KLCI, with a breach of the psychological resistance level at 1,700 potentially propelling the index higher.
Taken together, analysts continue to view the recent weakness in the premier index as a correction rather than the beginning of a sustained downturn, with the market’s next move hinging on the evolution of the US-Iran conflict, the US Federal Reserve’s policy path, global technology sentiment, and the return of foreign fund flows.
