PETALING JAYA: Stock market performance for this year will largely be dependent on the duration of the US-Iran war as well as the impact of oil prices.
Rakuten Trade head of research Kenny Yee said despite President Donald Trump’s confidence that the war will be a short one, it is more likely to be longer than expected just from the way Iran is now retaliating.
“Iran has declined Trump’s invitation to surrender, so I think the war will be a protracted one.
“And with that, there will be a tightening uncertainty within the global stock market again,” he said during Rakuten Trade’s second quarter market outlook media briefing themed Local but foreign flavoured last week.
According to Yee, there is no telling if Trump will put the brakes on this – right now the war is estimated to cost about US$1bil a day.
The United States’ national debt stands at roughly US$39 trillion, with interest payments alone exceeding US$1 trillion per year.
“Additionally, for the stock market within Asia, it will be a stop-start kind of scenario for the next couple of months,” he said.
“But as for the local market, I believe the strength of the ringgit against the US dollar will be a main catalyst in enticing foreign funds back into the country.”
This is a welcoming notion considering that in 2025, Malaysia saw more than RM20bil in foreign net outflows.
Furthermore, Yee told StarBiz that for 2026, it is difficult to estimate if it will be less or more.
However, foreign fund flows have been encouraging, with net inflows recorded at RM1.28bil.
“Foreign shareholding remains around the 19.1% mark, as such, we can affirm that more long-term foreign investors are returning, while the majority of the sellers were ‘day trippers’,” he said.
Moving forward, Yee expects to see foreign shareholding improving to between the 25% and 30% threshold.
“Key drivers would be reasonable valuations and earnings visibility, in addition to our strengthening currency,” Yee told StarBiz.
Despite this, Yee said they tweaked the FBM KLCI target for this year to be lower at 1,800 on 17 times the 2026 price-to-earnings ratio in view of the overhanging uncertainty.
Meanwhile, Rakuten Trade vice-president of research Thong Pak Leng said sector-wise, they were overweight on banking for its strong fundamentals and dividend yields.
“The sector’s recent quarter earnings have been in line broadly within market expectations,” he said.
“The 2026 earnings are expected to remain resilient, with loan growth projected at around 5%, supported by a stable overnight policy rate of 2.75% and a steady net interest margin of 2.1%.”
Thong said the healthcare sector is supported by two main catalysts – Visit Malaysia 2026 and Malaysia Year of Medical Tourism 2026 – with a target of RM12bil in industrial revenue by 2030.
“This 2026 is a critical launchpad year, and hospitals are shifting away from general care towards specialised, high-margin centres of excellence,” he said.
As for the much-talked-about oil and gas sector, Thong noted they had upgraded the sector recently.
He said the sector is positioned as the primary defensive hitch and stabiliser during the Middle East conflict.
“Brent crude oil spiked to above US$100 per barrel, with the potential to touch US$150 per barrel if the Strait of Hormuz, which carry 20% of our oil shipments, remains restricted.
“We believe operating companies with the leverage to curb oil prices and shipping (costs) will be the prime beneficiaries.”
