KUALA LUMPUR: After a sharp 136-point rally in December and January, the FBM KLCI is moving into a phase of healthy consolidation, weighed down by weaker market breadth, regional markets, Wall Street's ongoing volatility, and cautious positioning ahead of the February corporate results season.
Hong Leong Investment Bank (HLIB) said the benchmark index's primary uptrend remains intact, although rising global risk aversion is increasing downside risks.
"A decisive break below the 1,700–1,721 support band would signal trend disruption, potentially triggering deeper consolidation as profit-taking accelerates and foreign outflows intensify," the bank added.
That said, HLIB views the recent pullback as temporary and constructive, driven more by de-risking and portfolio rebalancing than by any deterioration in fundamentals.
The FBM KLCI retreated in line with the sell-off on Wall Street and regional markets, falling 11.8 points to close at 1,731, as investors locked in gains following the recent rally. Losses were led by heavyweight stocks such as IHH Healthcare, Press Metal Aluminium, YTL Power International, Axiata Group, Petronas Gas, Tenaga Nasional and Gamuda.
Market sentiment weakened, with market breadth deteriorating to 0.30 from 0.77 previously, signalling broader selling pressure. Despite this, local institutions emerged as net buyers with RM11 million in net inflows, lifting their purchases to RM89 million month-to-date in February, RM1.15 billion in January and RM1.24 billion on a year-to-date basis. Local retail investors also provided support, recording net buying of RM54 million.
In contrast, foreign institutions extended their selling streak for a fifth session in six days, with net outflows of RM65 million. This brought foreign net selling to RM118 million month-to-date in February, although they remained net buyers for the year so far.
From a technical perspective, HLIB said the KLCI remains in a primary uptrend, consolidating within a rising channel after peaking at a seven-year high of 1,771.3 on Jan 27. The pullback to 1,731 appears to reflect orderly profit-taking, with momentum indicators such as the RSI easing and MACD flattening, signalling consolidation rather than a reversal.
The bank added that as long as the index holds above key supports at 1,721 and 1,700, it remains positioned for a medium- to long-term advance toward 1,755, 1,771 and potentially 1,800.
"A sustained breach of 1,700 would expose deeper downside toward 1,688," it said in a note.
HLIB noted that Malaysia's economic outlook remains supportive, driven by resilient gross domestic product growth of 4.8 per cent in 2025 and 4.5 per cent in 2026, and undemanding valuations with the KLCI trading at a 2026 price-earnings ratio of 14.9 times versus its five-year average of 17.2 times, and an expected pickup in earnings growth to 7.1 per cent in 2026.
The ringgit's strength, up about 11 per cent year-on-year at RM3.93 against the US dollar, and narrowing US–Malaysia interest rate differentials are also supportive of renewed foreign interest.
HLIB noted that foreign investor sentiment has shown signs of recovery, with year-to-date inflows of RM930 million, a sharp reversal from net outflows of RM22.23 billion in 2025. This has been accompanied by a gradual rise in foreign shareholding to 19.2 per cent as of Jan 26, from a record low of 18.7 per cent in September last year.
"In response to heightened external headwinds and a lack of near-term domestic catalysts, we squared off our outstanding position in January, including Kimlun Corp (5.2 per cent loss), Ranhill Utilities (2.9 per cent loss) and SCG Packaging Malaysia (2.9 per cent loss)," HLIB said.