As Malaysia’s Prime Minister Anwar Ibrahim prepares to unveil the nation’s spending plan for next year, investors are keen to see a balance between fiscal prudence and the need to support the trade-reliant economy in the face of US tariffs.
The annual budget on Oct. 10 is an opportunity for Anwar, who doubles as finance minister, to address the growing disenchantment among Malaysians over some of his policies while seeking to revive investor confidence in local stocks that have seen foreign funds flee this year.
For equity investors, the consumer sector is being touted as one potential winner should Anwar announce any populist measures to help ease discontent over rising living costs. Focus is also on infrastructure, particularly any investments in data centers for artificial intelligence, as well as any support measures for exporters.
The market should "react positively” to the budget, Lim Sue Lin, an analyst at Maybank Securities Pte, wrote in an Oct. 5 report. "We remain positive on domestic-centric sectors - consumer, construction, healthcare, REITs, renewable energy.”
The benchmark FTSE Bursa Malaysia KLCI Index is down 0.3% so far in 2025, trailing an advance of nearly 11% in the broader MSCI Asean Index, amid rising trade risks. Overseas investors have sold $3.6 billion worth of local shares on a net basis this year.
Maintaining its fiscal health is key for Malaysia to retain emerging Southeast Asia’s highest credit score and lift investor confidence in local assets.
The nation’s central bank in July lowered its 2025 annual growth forecast to a range of 4% to 4.8%, from 4.5% to 5.5%, citing tariff concerns. Exports rose less than expected in August, the month in which higher US levies kicked in, with shipments to the US down 16.7% year-on-year. The two countries are seeking to conclude tariff talks before President Donald Trump’s planned visit to Kuala Lumpur later this month.
Anwar is likely to target a budget deficit of 3.55% of gross domestic product for next year, according to the median estimate in a Bloomberg survey, compared to a goal of 3.8% for 2025.
Here are some of the key focus areas for investors when it comes to the 2026 budget announcement:
Consumer
UOB Kay Hian Pte expects the re-targeting of fuel subsidy coupled with cash handouts and wage hikes for civil servants to reduce cost-of-living pressures and raise disposable income for consumers.
"Retailers are at the forefront” in terms of beneficiaries, Philip Wong, an analyst, wrote in a note, adding that the above factors will help drive resilient mass-market demand.
Meanwhile, analysts at MBSB Investment Bank see funds being allocated toward the ‘Visit Malaysia 2026’ initiative for tourism promotion campaigns aimed at attracting international visitors. This is expected to benefit companies in the travel space.
Companies in focus: 99 Speed Mart Retail Holdings Bhd
. (stock is up 16% year-to-date), MR DIY Group M Bhd. (-8.7%), Fraser & Neave Holdings Bhd. (-0.6%), Aeon Co. M Bhd. (-17%), Life Water Bhd. (+9.5%), Capital A Bhd. (-14%) and Eco-Shop Marketing Bhd. (stock is up 35% since listing in May 2025)
Infrastructure
Budget 2026 is set to include new projects and extensions such as continued works on the Pan Borneo Highway and upgrades to the PLUS Expressway in Johor and Penang, Barnabas Gan and Chin Yee Sian, economists at RHB Bank Bhd., wrote in a note. Flood mitigation will also be a fiscal priority, they added.
The budget is also likely to allocate funding for plans for digital transformation, such as broadband expansion and smart city infrastructure, according to the economists.
Tengku Datuk Seri Zafrul Abdul Aziz, minister for investment, trade and industry, said at the recent Milken Institute Asia Summit that Malaysia wants to "move up the value chain” for chips and manufacturing more broadly - from testing and assembly to design and R&D. It also wants to scale up investments in AI and renewables.
MBSB analysts also expect the Johor-Singapore Special Economic Zone to be a key catalyst for construction demand moving forward. "Major construction firms also continue to capitalise on the upward trajectory of data centres,” they wrote in a report.
Companies in focus: Gamuda Bhd. (+15%), Sunway Construction Group Bhd. (+27%), IJM Corp. Bhd. (down about 9%), YTL Corp Bhd. (+3%) and Tenaga Nasional Bhd. (-11%)
Bonds and Currency
Investors in the bond market will be focusing on the fiscal deficit target as well as the debt supply for 2026. Meanwhile, signs of fiscal consolidation and expectations of rate cuts by the Federal Reserve have raised the appeal of the ringgit. It has outperformed all Southeast Asian currencies except for the baht so far in the second half of 2025.
Ringgit-denominated bonds have lured net foreign inflows of $3.2 billion this year.
Fesa Wibawa, an investment analyst at Aberdeen Group in Singapore, said he is positive on Malaysian government bond supply heading into 2026 because "fiscal consolidation is taking hold.” A 3.5% deficit target for 2026 looks achievable and the risk-return profile for government bonds is attractive, he added. - Bloomberg
