MBSB Research said the market consensus expectations is for the FBM KLCI to post 7.7% year-on-year earnings growth.
PETALING JAYA: The equity market is expected to advance through 2026, buoyed by resilient macroeconomic conditions, improving earnings prospects and the reemergence of foreign fund inflows, even as investors remain alert to external risks.
A firmer ringgit, steady domestic monetary policy and supportive liquidity trends are expected to support sentiment, keeping valuations attractive by historical standards, according to analysts, who have turned “constructive” on their outlook for the stock market.
MBSB Research said: “We expect the local equity market to gain further ground underpinned by the healthy economy as well as corporate earnings outlook, supported by undemanding equity valuationsbesides pent-up buying from return inflow of foreign funds.”
The research house expected the economy to remain on solid footing, projecting gross domestic product (GDP) growth of 4.3% in 2026, alongside market consensus expectations for the FBM KLCI to post 7.7% year-on-year earnings growth.
Valuations remained a key pillar of the bullish case, the research house said, noting that the benchmark is trading below its 10-year average price-to-earnings ratio (PER) of 16 times. It described the market as attractively priced relative to its own history.
As such, it raised its FBM KLCI end-2026 baseline target to 1,850 points from 1,750 points previously or PER to 16 times from 15.2 times.
“The prospects of declining US dollar interest rates may encourage some investors to redirect their funds to countries or regions with more stable interest rates,” MBSB Research said.
It anticipated Bank Negara Malaysia to keep the overnight policy rate unchanged and the US dollar to ringgit forecast to ease to 3.95 by end-2026.
“We expect pent-up buying from return inflow of foreign funds to push the local equity market higher,” it added, noting that Malaysia recorded a net foreing inflow of RM1bil in January after three consecutive months of outflows.
Maybank Investment Bank Research (Maybank IB) highlighted that the equity market kicked off to a strong start in January with average daily trading activity reaching RM3.4bil, surpassing all monthly levels recorded in 2025.
Despite a lower foreign participation rate, it said, January recorded a net foreign inflow of RM1bil, with foreign investors favouring large-cap names such as Press Metal
Aluminium Holdings Bhd, Malayan Banking Bhd and Public Bank Bhd.
Sector-wise, the property sector emerged as the top sector performer last month, followed by the financials and real estate investment trusts.
Beyond equities, Maybank IB highlighted supportive bond flows, stating: “Foreign funds added RM3bil of ringgit bonds in December 2025, marking the third straight month of increases, totalling RM13.5bil over October to December.”
It added that the foreign fund flow momentum could sustain if the expectations of US Federal Reserve easing and ringgit strength holding.
CIMB Research observed that the index entered 2026 with strong momentum, noting that the FBM KLCI rose four consecutive weeks to close at 1,740 points last month.
It attributed the gains to policy optimism, firmer macro signals, foreign inflows and a stronger currency, alongside Prime Minister Datuk Seri Anwar Ibrahim’s reform-focused New Year address and better-than-expected fourth-quarter GDP growth.
While acknowledging shifting investor participation, CIMB Research said: “We maintain our end-2026 FBM KLCI target of 1,772 points.”
Meanwhile, an analyst told StarBiz that the key swing factor would be the durability of global growth, particularly in the United States, as any sharper-than-expected slowdown could temper risk appetite and delay a more sustained rerating of regional equities.
“That said, Malaysia remains relatively well-positioned given its stable policy backdrop, improving currency dynamics and reasonable valuations, which should help cushion volatility and keep foreign investors engaged over the medium term,” he explained.
