PETALING JAYA: Small and mid-cap stocks are well-positioned for renewed outperformance in 2026, with improving macro sentiment and a maturing bull cycle expected to tilt the advantage towards higher-growth names.
Against this backdrop, a clutch of lesser-known property, construction and investment counters is emerging as early beneficiaries of a broader market upswing.
TA Research said that selective exposure will be key, pointing investors towards five standout stocks it believes are well-positioned to run ahead of the market.
“Screening through our stock universe based on market capitalisation of RM200mil to RM3bil; ‘buy’ recommendations; projected capital upside; and strong earnings growth for 2025-2028 periods, we have shortlisted five standout stocks,” it said.
The shortlisted names are Exsim Hospitality Bhd with a target price (TP) of 40 sen; CBH Engineering Holding Bhd with a TP of 82 sen; Southern Score Builders Bhd
, 81 sen; PGF Capital Bhd, RM2.92; and Skyworld Development Bhd, 70 sen.
According to the brokerage, these counters combine earnings visibility with valuation appeal at a time when investors are increasingly looking beyond large-cap defensives.
TA Research described the group as five “dark horses” that “combine solid growth prospects, resilient earnings drivers and significant valuation upside, well positioning to run ahead in 2026”.
“With strong fundamentals and the energetic momentum of the Year of the Horse, we believe these picks offer the much-needed alpha to capture above-market returns in the new year,” it added.
At the index level, the firm expects the FTSE Bursa Malaysia Small Cap Index (FBMSC) to initially move in tandem with the FBM KLCI into early 2026, before asserting its historical tendency to outperform during bull phases.
“Historically, small-cap stocks have a 57% chance of outperforming the broader market in bull phases and offer greater upside potential for investors,” it noted.
The brokerage’s longer-term analysis shows that since 2000, the FBMSC has beaten the FBM KLCI by an average of 1.06 percentage points, with the performance gap widening in more recent periods.
TA Research maintains that the broader market has been in a major bull cycle since March 2020, reinforced by a rebound of more than 46% from pandemic-era lows.
While its base-case target for the FBM KLCI stands at 1,760 by end-2026, the firm has flagged upside to 1,850 under more supportive conditions, including political stability, resilient domestic demand and easing global monetary conditions.
In that environment, small caps are expected not only to outperform the headline index but also to deliver sharper gains.
Meanwhile, one analyst said current stock valuations of many small and mid-cap counters remain supportive despite recent market gains.
“Many small-cap stocks are still trading below their intrinsic value relative to growth prospects, and as liquidity improves, we expect investor interest to gradually pick up over the course of 2026,” he stated.
