PETALING JAYA: Rakuten Trade has revised downwards its FBM KLCI target for 2026 to 1,770 from 1,800 previously, citing persistent global market uncertainties.
However, it is maintaining a positive outlook on Malaysian equities amid resilient corporate earnings, stable commodity prices and expectations that US interest rates will remain unchanged.
Rakuten Trade head of research, Kenny Yee noted that political developments have not been a key factor in its FBM KLCI forecasts. He said there was no direct correlation between election outcomes and market performance unless the result was significantly outside expectations.
This was based on its analysis of the past five general elections in the country.
“The clearest example was when Barisan Nasional lost power, which triggered a negative market reaction.”
However, Yee highlighted that recent political ripples may have enhanced market uncertainty, as demonstrated by the net outflow of foreign funds in May this year.
“Focus will also be on the impending state elections in Johor and Negri Sembilan over the next one to two months,” he said in a virtual media briefing.
On the impact of the proposed FBM KLCI expansion on banking stocks, Yee said the effect is expected to be minimal, although the broader index revision could improve sector diversification by increasing the representation of technology companies.
He noted the simulations suggest that the banking sector’s weighting would ease only slightly, by about two to three percentage points from 33% to around 30% to 31%.
“As such, the impact is not that apparent,” he said.
“More tech companies could enter the benchmark once the expansion is implemented, enhancing sector breadth.”
In its third quarter briefing, Rakuten Trade highlighted elevated national debt levels, low interest rates and weak currencies, particularly in the United States and Japan, could amount to a “perfect storm” for global financial markets.
On potential spillover effects, Yee said the impact of worsening debt conditions, interest-rate pressures and currency volatility from the United States and Japan varies significantly across countries, making it difficult to assess emerging markets as a single group.
Within South-East Asia, he pointed out that Indonesia appears to be the most vulnerable at present, while Malaysia remains relatively stable.
Thailand and the Philippines, on the other hand, face country-specific challenges, including political factors.
“Any deterioration in financial conditions would undoubtedly have an impact, but investors need to assess each market on its individual merits rather than taking a broad regional view,” he said.
He added that in a more defensive global investment environment, capital is likely to rotate towards traditional defensive sectors such as banking, telecommunications and plantations.
Subsequently, this could position FBM KLCI to benefit given many Asian markets are still trading below historical averages, offering more attractive value opportunities for investors.
