PETALING JAYA: The “sell America” trade and improved investor sentiment looks likely to support Bursa Malaysia in the immediate future as the local benchmark plays catch-up to regional markets.
The money moving into banks like Malayan Banking Bhd
, CIMB Group Holding Bhd and RHB Bank Bhd as well as power utility Tenaga Nasional Bhd is signalling that a secular bull market could be on the cards.
“The rise in the share prices of banks and other big-cap stocks is a vote of confidence from institutional investors in the outlook for the local market and underlying economy. This could sustain the rise in the stock market barring any shocks,” a high-net-worth investor told StarBiz.
He added the stable government in Putrajaya and policy measures to improve the real economy and an accommodative monetary policy will support economic and corporate earnings growth, while the narrowing of interest rate differentials with the United States will keep the ringgit well supported, inducing an inflow of funds into the local market.
The improved sentiment saw the local benchmark FBM KLCI close at a seven-year high of 1,708 points yesterday, up some 12 points on high volumes and value.
After an anaemic 2.3% rise in 2025, the local benchmark is already up some 1.67% year-to-date but still short of regional benchmarks like the FTSE Straits Times Index which is up 3.3%, Jakarta Composite (3.5%), Nikkei 225 (6.3%) or the Kospi (11.35%) in 2026.
The rise in the local index comes as foreign funds turned net buyers by some RM42.5mil last week after having sold some RM22.3bil in 2025.
If the index can hold above the 1,700-point psychological level, more gains could be on the cards, said analysts.
“The local market is up due to a positive momentum across the regional markets in Asia, where Malaysia tends to benefit from the spillover, especially after the lacklustre return in 2025.
“With the upwardly adjusted corporate earnings outlook, it shapes a potential valuation rerating in the Malaysian equity market,” said Kevin Khaw, assistant manager, research at iFAST Capital.
There is also a macro tailwind to the improved sentiment about the local market.
“Current volatility appears to be influenced more by US monetary policy expectations, particularly speculation around changes to the Federal Reserve (Fed) leadership and potential aggressive rate cuts,” said Warren Mak, chief executive officer of Ted Optimus Sdn Bhd and former Bursa Malaysia department head leading nationwide investor education initiatives.
As the FBM KLCI is heavily weighted toward banking stocks, which make up about 34.7% of total market capitalisation, Mak said strong bank earnings driven by digitalisation will support the index, even as the broader market shows mixed performance with selective gains and declines.
Analysts generally believe the corporate earnings results season (next month) for the fourth quarter of 2025 (4Q25) will provide a clearer picture of how the economy is performing and if the market will build on the gains it has made so far.
Maybank Investment Bank Research meanwhile has updated its stance on earnings of local banks for 2026 and 2027.
“We now have a ‘positive’ stance on banks (from ‘neutral’). We forecast 2025 net profit growth for banks under our coverage of 5% and 5.5% in 2026 and 2027 respectively, against 3.6% in 2025.”
It added robust domestic fundamentals helped by policy alignment could offer multi-year investment opportunities on the local exchange and expects 2026 to be pulsed with a clearer sense of direction and a stronger push to execute on long-promised reforms.
“Project rollouts are gathering momentum even as foreign direct investment inflows remain robust and businesses are revving up capital expenditure, while households are benefitting from steadier wages and stable employment, underpinning resilient consumption.
“Collectively, these positive trends create macro and investor sentiment backdrops that are more constructive for the equity market, with multiple themes setting the stage for earnings recovery and sustained FBM KLCI uptrend through 2026,” it stated in a report.
The legal challenge to US President Donald Trump’s reciprocal tariffs remains in court and a negative ruling (due this month) could see him opt for sectoral tariffs which could impact Malaysia’s exports but investors appear to be calm about the outcome.
“Although the trade risk has lowered to a lesser degree after the trade deal with the United States, Malaysia as a key player in the global semiconductor industry and export oriented economy remain exposed to the risk,” Khaw said.
The “sell America” trade could deepen as the investigations against Fed chairman Jerome Powell raises the fear of central bank independence among global investors.
Despite bowing to the White House to lower rates and ease financial conditions, the latest move has escalated the pressure on the outgoing chairman and sent a negative signal to inventors on the question of the very independence of the Fed.
Trump’s reciprocal tariffs issue is also being challenged in the court but analysts believe the risk to the local market remains – but is contained.
While big caps remain the flavour of the day, Khaw thinks a rotation into small caps is likely given the upside earnings adjustment for small cap counters is way larger, and should the 4Q25 earnings see further improvement, investor interest could broaden to such counters.
He added as the forward price earnings multiple of the FBM KLCI currently stands at 14.7 times, slightly below its 10-year mean of 15 times, the upside appeared to be limited.
