PETALING JAYA: Budget 2026 could determine if Bursa Malaysia can sustain its uptrend in the short term after having tested a year-high last week.
The local benchmark FBM KLCI hit a year high of 1,658 points last week and analysts said its pullback this week is due to profit-taking.
This was as investors turned cautious ahead of the tabling of the budget on Friday.
The local benchmark is now down 0.75 year-to-date and playing catch-up to regional markets which are testing fresh highs this year with the exception of the Philippine Stock Exchange.
Analysts said the positive market momentum would be sustained by growth-enhancing measures, particularly a focus on development expenditure (DE).
“We anticipate a higher allocation for DE compared to Budget 2025, which aligns with the historical trend of a larger DE outlay in the first year of a Malaysia plan.
“This expenditure is expected to be directed towards key growth areas, including the announcement of large-scale infrastructure projects under the 13th Malaysia Plan (13MP) and allocation towards technology and artificial intelligence or AI digitalisation and green transition priorities.
“The continuation of masterplans (the New Industrial Master Plan or NIMP, the National Energy Transition Roadmap or NETR and the National Semiconductor Strategy or NSS) and the boost from ‘Visit Malaysia 2026’ provide structural support,” said Kevin Khaw, assistant manager, research at iFast Capital.
He, however, warned that the government’s commitment to gradual fiscal consolidation meant that any revenue improvement measures perceived as overly aggressive could cause a market downturn.
Historical examples of such measures include the implementation of the capital gains tax and the low-value goods or LVG tax, increasing the services tax from 6% to 8%, electricity tariff adjustments and dividend taxes, and if similar or harsher measures deviate from the expected moderate pace of consolidation, market sentiment could suffer, Khaw said.
A chartist with a local brokerage told Starbiz that while the long-term trend for the FBM KLCI is up, if the budget disappoints expectations, it could lead to a deeper correction.
He said investors positioning post-budget would depend on which sectors stand to gain from the announcements and, conversely, who stands to lose.
Past budget announcements have not always led to a sustained equity market rally, but for the upcoming Budget 2026, there is strong anticipation that this round could bring potential surprises and serve as a significant catalyst for fund flows ahead.
As headwinds are subsiding, Khaw said the Madani government is likely to unveil large-scale infrastructure projects highlighted in the 13MP to spur the economy, including initiatives such as the light rail transit or LRT Mutiara line in Penang and the Johor-Singapore Special Economic Zone, in addition to national flood-mitigation initiatives.
Coupled with the improving global liquidity stemming from the US interest rate cutting cycle and the redeployment of cash by local institutions, these factors suggest the potential for further upside that could broaden the market rally beyond defensive sectors, he added.
Khaw said a major determining factor for the trajectory of Bursa Malaysia is the shift in global liquidity following the US interest rate cut of 25 basis points on Sept 17, with expectations of one or two more rate cuts prompting a rotation of funds back into emerging markets.
Here, Malaysia is positioned as a key beneficiary due to its solid domestic fundamentals, stable policies and ringgit stability.
