PETALING JAYA: Malaysia’s benchmark stock index is expected to remain on a cautious upward trajectory after the first quarter of financial year 2026 (1Q26) earnings season.
However, rising geopolitical tensions, domestic political uncertainties and pockets of earnings weakness prompted some research houses to favour defensive positioning.
The recently concluded reporting season broadly met expectations, according to analysts, who also noted that earnings growth remained intact despite a more challenging external environment and increased volatility across global markets.
CIMB Research observed that earnings surprises had become less frequent during 1Q26, with only 12% of companies under its coverage beating expectations compared with 26% in the preceding quarter.
At the same time, the proportion of firms missing forecasts rose to 24% from 19%, while 64% of results met expectations.
Despite the softer earnings season, CIMB Research remained constructive on the medium-term outlook.
“Post the 4Q25 earnings season, we forecast FBM KLCI earnings growth of 7.2% for 2026 (up from 6.8% previously) and 5.1% for 2027 (from 7%),” it said.
The research house trimmed its end-2026 FBM KLCI target to 1,745 points from 1,754 points, after lowering its valuation multiple assumptions.
It upgraded the building materials, plantation, oil and gas, and technology sectors to “overweight” from “neutral” on improving earnings prospects, while downgrading utilities, property and construction to “neutral” following share price gains and concerns over rising costs.
The research house added that it remained defensive on domestic stocks, while selectively favouring exporters.
TA Research noted that 1Q26 reporting season unfolded amid escalating tensions between the United States and Iran, which kept oil prices elevated and disrupted supply chains.
Nevertheless, the research house said 1Q26 reporting season was largely within expectations, with 63% of companies reporting earnings that were in line with its forecast.
The research house said the full impact of the conflict had yet to be reflected in corporate earnings, as companies under its coverage still posted 2.6% year-on-year (y-o-y) growth, supported by stronger operating margins and contributions from the telecommunications, transportation and property sectors.
Following the reporting season, TA Research modestly reduced its earnings forecasts for 2026 and 2027, but continued to project earnings growth of 8.5% and 6.2% respectively.
It maintained an end-2026 FBM KLCI target of 1,760 points, while noting that a previously envisaged best-case target of 1,850 points had become less likely.
“Thus, we continue to prefer a defensive approach with selective exposure to tactical plays to capitalise on volatility and long-term structural growth drivers.”
RHB Research also advocated caution, describing quarterly earnings as having “soft undertones” during a seasonally weaker period.
It highlighted that banks, plantation, property and rubber products sectors missed expectations, while earnings revisions turned negative after stripping out exceptional adjustments.
The research house lowered its end-2026 FBM KLCI target to 1,750 points from 1,780 points after reducing earnings forecasts.
“We still advocate a core defensive investment stance, coupled with a trading mentality anchored on a buy-on-weakness strategy,” it said.
RHB Research added that the dissolution of the Johor state legislative assembly had introduced additional political risk, potentially keeping the market confined within a narrow trading range.
Meanwhile, MBSB Research reported that aggregate normalised earnings of the 30 FBM KLCI constituents rose 10.5% y-o-y and 2.1% quarter-on-quarter to RM18.9bil for 1Q26.
Within its coverage universe, 71% of companies delivered earnings in line with expectations, while only a minor upward adjustment was made to aggregate earnings forecasts.
Furthermore, the research house maintained its 2026 FBM KLCI target of 1,800 points, the highest among the four research houses.
It said earnings revisions were supported mainly by the healthcare, transport and logistics, telecommunications and media, and plantation sectors.
However, it cautioned that “under a worse scenario of more severe and prolonged supply disruption (which would engender heightened price pressure and potential financial liquidity tightening), we shall downgrade our fundamental and price targets in due course”.
One analyst told StarBiz that the 1Q26 earnings season suggested that corporate Malaysia remained resilient, despite a challenging operating environment.
“However, investors would likely stay selective, as external risks and policy uncertainties continue to influence sentiment,” he added.
