PETALING JAYA: The uncertainties surrounding conflict in West Asia makes gauging outcomes difficult, according to MBSB Research in a report on the second quarter 2026 (2Q26) outlook.
The research house laid out four scenarios, from “blue sky” in which hostilities ceased with better outcomes for energy prices as well as equity markets to market shock and structural collapse should the conflict extend well beyond six weeks.
It noted that equity markets had a promising start to the year, with momentum to carry on for the rest of 1Q26 until the disruption due to the conflict.
However, several markets, including Malaysia, have been more resilient as commodity-related stocks supported the benchmark FBM KLCI.
“On a year-to-date basis, the FBM KLCI have not erased any gains seen in January, and by the end of 1Q26, still registering gains of 0.6% to 1,690.36.
“In fact, on a month-on-month basis, the FBM KLCI was the best-performing market in March,” it added.
Yesterday, the FBM KLCI closed down 10.6 points, or 0.62%, at 1,698.30, recovering from an intraday low of 1,688.89 after hitting a high of 1,712.80.
The research house pointed out that Bursa Malaysia’s commodity-related indices rebounded strongly in March after falling in the first two months and were the best performing indices in 1Q26 with foreign funds remaining in the market focusing on defensive plays that include healthcare and real estate investment trusts (REITs).
Market sentiment remained cautious going into 2Q26 with support coming from relatively undemanding valuations, with the FBM KLCI trading at price-to-earnings ratio of 15 times versus the 10-year average of 16 times. The market’s dynamics would also be supported by still positive earnings growth outlook as well as economic growth.
“Despite our baseline expectations of still resilient macro performance along with positive earnings growth this year, we expect local equity valuations to remain at sub-average levels,” it said.
It cautioned that the US Federal Reserve opting to maintain its benchmark rate would be a near-term headwind for the ringgit while higher-for-longer US interest rate environment typically damps the appetite for emerging market equities like those in Malaysia.
It advised investors to tactically seek cover among defensive stocks in case the situation turns for the worse.
“Purely defensive stocks, such as those in REITs, utilities, healthcare, and consumer staples, tend to provide consistent dividends and stability in demand and hence, earnings regardless of the overall economic conditions,” it said.
It has upgraded oil and gas stocks to “positive”, and has maintained “positive” calls on banking, construction, consumer, healthcare, plantations, property, REITs, utilities and renewable energy. Automotive, technology, telecommunication and transportation stocks continue to be “neutral”.
