HONG KONG (March 22): Malaysian CPI on Friday is set to show the nation's mired in deflation, setting the stage for a hit to earnings for local stocks that are already struggling as Asia's only major loser this year.

Consumer prices for February contract 0.3% y/y last month, according to a Bloomberg survey of economists. That follows January's 0.7% decline -- the economy's first deflation since the aftermath of 2009's global crisis.

Falling consumer prices darken the profit outlooks for financials and consumer staples which take up more than half of the value of the FTSE Bursa KLCI Index. Prospect of a rebound for the KLCI index look minimal unless the economy can somehow turn around. The gauge is down 1.6% YTD, the only drop among major Asian benchmarks.