UOBKH Research said Malaysian equities could fire up for outperformance in 2026 after a defensive-driven movement in 2025.
PETALING JAYA: The Malaysian equity market is set to register another year of gains this year.
This will build on the relatively stable political climate locally amid an increasing focus on geopolitics in the international stage which is set to move risk assets higher.
Fundamentally, local equity valuations which are mostly in the lower teens may support a growth outlook for further gains although technical chartists do not rule out a possible correction on the horizon.
“I don’t think the overall market is unnecessarily threatened.
“But a correction could come if overbought conditions prevail, coupled with any unanticipated developments especially with regard to global geopolitics.
“But risk assets could still see outsized gains on potentially stronger than usual risk gains in the United States.
“The Relative Strength Index gauge still shows room for more gains,” a chartist told StarBiz.
According to UOB Kay Hian Research (UOBKH Research) Malaysian equities could fire up for outperformance in 2026 after a defensive-driven movement in 2025.
“We maintain our end-2026 FBM KLCI target of 1,760, but the index could potentially exceed 1,800 before the market turns risk-off towards year-end, ahead of the 16th General Election which we expect to take place in 2027,” it said.
Accommodative monetary policies that would anchor the backdrop are likely to keep risk-asset sentiment buoyant in spite of any geopolitical flare ups.
It noted domestically, a firmer ringgit and follow-through buying on laggards should sustain market momentum and underpin outperformance in selected stocks.
“We expect our FBM KLCI / universe earnings (earnings of stocks within its coverage) to still grow by 4.4% / 5.2% respectively versus the FBM KLCI’s 2.3% appreciation in 2025.”
After a strong start in 2025, the research house said Malaysian equities were weighed down by artificial intelligence diffusion concerns, trade tariffs and geopolitical risks, resulting in a sharp rotation into defensives such as large-cap blue chips, consumer staples, real estate investment trusts and plantations.
“We adopt a risk-on mode with focus on various investment themes that heat up the banking, power and building material sectors; followed by consumer, plantation, technology, property and construction,” it added.
The FBM KLCI may be reignited by pre-general elections trading liquidity, since Malaysian equities generated positive returns in the 12-month periods in the run-up to past election polling dates, UOBKH Research noted.
After a rare year in 2025 where the FBM KLCI failed to convert the ringgit’s strength into meaningful capital gains, the index should play catch-up and reverse 2025’s regional underperformance, it said.
Meanwhile Hong Leong Investment Bank Research said the FBM KLCI is likely to undergo a healthy profit-taking pullback in the absence of fresh domestic catalysts after the robust 75.9 points rally in December, amid persistent foreign outflows.
“That said, Malaysia’s fundamentals remain supportive, underpinned by solid forecast gross domestic product growth, undemanding valuations for 2026 forward price to earnings ratio of 14.5 times versus the five-year mean of 17.2 times, a stronger ringgit and core earnings growth of 7.6% this year.
“These factors support a constructive medium-term outlook and could pave the way for an uptrend resumption toward 1,750 following consolidation,” it said.
