PETALING JAYA: The nation’s equity market is expected to remain on a cautiously constructive path through the remaining part of 2026, as investors weigh supportive domestic fundamentals against continued rising geopolitical risks and political uncertainties.
That’s how RHB Research frames its latest outlook on the country’s stock market, advocating a defensive, “buy-on-weakness” strategy to maximise returns.
The research house said in its report yesterday that it remains positive on the market’s medium-term prospects.
“Malaysia’s domestic liquidity, net energy exporter buffers and reform momentum underpin our stance – but elevated geopolitical and 16th General Election uncertainties in the second half of financial year 2026 (2H26) demand a defensive, buy-on-weakness playbook favouring energy, plantations, healthcare, telecommunications and real estate investment trusts (REITs).”
For now, RHB Research said it maintained its base case outlook for equities, with its end-2026 FBM KLCI target unchanged at 1,780 points.
However, it cautioned that the geopolitical tensions, particularly in the Middle East, continue to cloud sentiment, noting that the US/Israel-Iran war has been emblematic of the elevated geopolitical risk environment ushered in by the current US President Donald Trump’s administration.
Despite these near-term headwinds, RHB Research highlighted several structural support for Malaysian equities, including the availability of strong domestic liquidity, the country’s position as a net oil and gas exporter, improving reform momentum, and low foreign ownership levels.
All of these reflect the country’s strong economic fundamentals.
It stressed that there are still good arguments for investors to adopt a long-term view on domestic equities, even as geopolitical developments muddy near-term expectations.
Under its base case scenario, RHB Research expects tensions to ease without fully dissipating.
Investors are advised to accumulate on weakness, particularly in domestic-centric sectors, as market pullbacks are likely to be shallow and present trading opportunities.
“Maintaining some defensive exposure remains prudent to hedge against renewed volatility,” the research house added.
Drawing on historical trends, RHB Research painted a potential downside scenario as such:
“We estimate the trough valuation for the FBM KLCI at negative two standard deviation from the mean, or 1,433 points.”
RHB Research further warned that “a worsening geopolitical complexion would call for a greater risk-off stance, focusing on more defensive sectors (such as energy, plantation, healthcare, telecommunications, consumer and REITs) and higher cash holdings”.
In the near term, the research house reiterated its continued cautious stance.
“The defensive investment stance promulgated in our 2026 equity outlook report centred on investor circumspection, trading mentality, and a buy-on-weakness strategy remains applicable,” it said.
Should a more durable peace emerge, RHB Research expects a relief rally led by growth and previously underperforming names.
The research house added that a shift to a more positive environment would redirect focus towards growth and laggard stocks.
Conversely, an escalation into a broader regional conflict could trigger sustained risk-off sentiment, higher inflation and prolonged market stress, with investors increasing cash positions and rotating further into defensive sectors.
In the midst of heightened volatility and uncertainities, RHB Research further emphasised the importance of selective stock picking by favouring heavily companies with resilient earnings, strong cash flow visibility and sustainable dividends across a balanced mix of value, growth and yield themes.
Meanwhile, one analyst said that Malaysia remained a beta market, with the FBM KLCI likely to remain range-bound in the near term despite rising geopolitical tensions.
“Our downside risk will likely cushioned by domestic liquidity but upside capped by persistent external uncertainties and cautious foreign participation,” he said.
