Rakuten Trade head of research Kenny Yee.
PETALING JAYA: A renewed rotation of global funds into Asia is set to lift Malaysia’s equity market in the first quarter of 2026, as investors scale back exposure to richly valued US assets and seek growth opportunities closer to home.
Rakuten Trade head of research Kenny Yee said the rotation toward Asia is becoming increasingly visible, particularly in Hong Kong and China.
This comes after several years of strong performance in US equities, prompting global investors to recalibrate risk-return expectations at current valuation levels.
“Malaysia is well-positioned to benefit as both foreign and domestic investors prioritise markets offering earnings visibility, stability and quality fundamentals within the region,” Yee said in a statement on the firm’s latest outlook.
Backed by this, Rakuten Trade has raised its 2026 FBM KLCI target to 1,810 points, reflecting a 7.1% expected earnings growth.
This is supported by stronger forecasts for banking and plantation sectors, alongside resilient domestic fundamentals.
The research firm noted that foreign fund flows in Malaysia recorded net outflows of RM22.6bil in 2025.
“However, foreign shareholding remained steady at approximately 19%, indicating continued participation by long-term investors even as short-term traders reduced exposure,” said
It said domestic institutional investors continued to play a stabilising role in the market, while retail participation remained modest at around 18%, suggesting that market participation could improve with clearer catalysts.
An analyst from a bank-backed research firm likewise maintains a favourable view on Asean equities heading into 2026.
Several key themes are expected to underpin upside for regional markets, including sustained investment upcycles driven by strong foreign direct investment inflows into data centre and infrastructure projects, AI supply chain-related demand, and continued growth in tourism, Yee said.
He noted that the region’s equity markets are attractively valued, trading at low to mid-teens price-to-earnings multiples, while offering average dividend yields of more than 4%.
Vietnam is forecast to “outperform” again, just like in 2025.
Turning to Malaysia, the analyst said Malaysia’s economic growth is expected to remain largely domestic-driven, supported by steady private consumption, a sustained investment upcycle and post-pandemic tourism recovery.
With inflation remaining low, the central bank is expected to keep the overnight policy rate mildly accommodative at the current level.
In a report yesterday, Hong Leong Investment Bank (HLIB) Research said it remains constructive on Malaysia’s outlook, maintaining its first-half 2026 FBM KLCI technical target of 1,750 to 1,770 points, supported by strong domestic fundamentals.
“Malaysia’s equities remain attractively valued, with a 2026 forward price-to-earnings ratio of 14.9 times, below the five-year average of 17.2 times, while the ringgit is firmer, up 10% year-on-year against the US dollar.”
There is also renewed foreign interest as US-Malaysia rate differentials narrows, it added.
However, after a broad eight‑week, 95‑point rally, the local stock market may trade with caution in the near term, mirroring choppy moves on Wall Street and across the region.
“Fading momentum indicators and a lack of fresh domestic catalysts point to a consolidation phase, while sentiment may stay subdued amid the fourth quarter 2025 earnings season in the Unite States and lingering geopolitical risks across Iran, Venezuela, China-Japan and Greenland,” HLIB Research said.
Yesterday, the FBM KLCI closed at 1,712.33 points.
