PETALING JAYA: There may be limited room for further upside for Malaysian equities, even if risk appetite stays resilient.
Factors such as rising valuations and any continued foreign selling may cap further upside for now, according to HSBC Global Investment Research.
The FBM KLCI ended at 1,712 at yesterday’s close.
HSBC Global Investment Research’s Malaysian arm said local equities were broadly flat last year in local currency terms.
“Despite a resilient macroeconomic backdrop, the equity market has been weighed down by persistent foreign outflows, subdued sentiment, and soft earnings expectations. Selling pressure from foreign institutional investors (FIIs) has been relentless, with FIIs having sold roughly US$5bil of Malaysian equities last year, the largest annual outflow since 2020,” the research house said.
Not helping either are analysts expectations that earnings growth will be at just 1% for last year, but rising to 8% this year, it added.
However, Herald van der Linde, HSBC’s head of equity strategy for Asia Pacific, said in the HSBC 2026 Asian Outlook briefing yesterday that Malaysian equities may still stand out for their defensive nature in a period of rising geopolitical tensions.
“The earnings growth story may not really stand out for Malaysia compared with other countries. Interest rates remain relatively high around the world and this is positive for the banks, including in Malaysia and Singapore.
“This is moderately positive for the equity market in terms of weighting on Malaysia’s FBM KLCI. This puts Malaysia in the middle of the group for us when it comes to overall outlook for equities,” he said.
“But many things are happening in the geopolitical arena and this has not really disturbed Asian equities, though it might at some particular point in time. One of the most defensive markets we have in Asia is Malaysia.
“There’s always good buying in Malaysia when the markets go down. The downside risk in Malaysia is limited but there is soft upside for the reasons mentioned earlier,” van der Linde added.
The research house said that Bursa’s valuations are not “particularly attractive” at present, with the market trading at a 12-month forward price-earnings multiple of 14.7 times, which is broadly in line with its five-year average.
“We see limited room for the multiple to re-rate in absence of clear catalysts. Banks, which make up the largest weight in the FTSE Malaysia index, posted modest gains last year. Looking ahead, consensus forecasts net interest margins (NIMs) to remain flat, while loan growth is expected to remain stable,” it noted.
Speaking about US curbs on the sale of chips used for artificial intelligence (AI), the research house noted that mainland China technology companies are shifting their AI model training to Malaysian data centres, which reinforces Malaysia’s strength as a destination for data centre investment.
However, it noted direct exposure to this theme within the listed equities environment remains limited, with only real estate and utilities providing some exposures.
Also any moderation in the AI cycle would pose a risk to these sectors, it said.
“AI was one of the biggest drivers of markets last year and will remain a big conversation this year. This is of course a particularly big driver for South Korea and Taiwan where these components are being made and exported for US data centres. But this is very well known and valuations have run up.
“This is a risk as well because if something changes, we expect everyone will want to exit at the same time,” van der Linde said.
The research house remained neutral on Bursa Malaysia with an forecast for the FBM KLCI at 1,750 at the end of this year.
