PETALING JAYA: As the market steps into the second half of financial year 2026 (2H26), investors are urged to look beyond Malaysia’s technology-led rally.
Analysts are increasingly favouring banks, utilities and infrastructure-linked sectors amid the demanding technology sector valuations and lingering global uncertainties.
In the banking sector, moderating sentiment has eased prices, improving entry points as valuations are no longer seen as “rich” by historical standards, enhancing perceived investment security.
According to Tradeview Capital chief executive officer Ng Zhu Hann: “I’m more interested in sectors that haven’t performed as strongly and that continue to offer attractive dividend income.
“I particularly like the banking and insurance sectors.”
Their share prices have softened, creating opportunities to buy quality companies that continue to pay healthy dividends.
“Valuations are more reasonable today, which provides a greater margin of safety,” he said.
Ng added stock recommendations including Hong Leong Financial Group Bhd
, CIMB Group Holdings Bhd and Public Bank Bhd for the banking sector and Syarikat Takaful Malaysia Keluarga Bhd for insurance.
BIMB Securities research director Mohd Redza Abdul Rahman reiterated the sentiment, noting the banking sector is supported by healthy credit expansion, stable net interest margins, strong balance sheets and attractive dividends.
Redza highlighted that the sector’s dividend yields are trending between 6% and 7%, offering investors both earnings resilience and steady income. He recommended Malayan Banking Bhd and Public Bank as key picks for income and stability.
Meanwhile, analysts also highlighted the utilities sector, pointing to Malaysia’s water infrastructure gaining strong appeal amid recent economic developments.
Ng said utilities were more defensive and stable in nature, especially with the current surge in demand for electricity and water.
“Utility companies may not be the primary beneficiaries, as landowners and contractors involved in infrastructure development could see more immediate gains.
“However, they still benefit because new industrial developments and data centres (DCs) require greater electricity and water consumption,” he added.
Ng included utility companies like Mega First Corp Bhd, Tenaga Nasional Bhd and Penang-based water supply company PBA Holdings Bhd as top picks for the sector.
Additionally, seasoned investor Ian Yoong said firms’ earnings growth prospects in the water infrastructure sector look attractive, highlighting that massive industrial expansion in Batu Kawan, Selangor and Johor is driving up demand for water.
“It is possible that southern Johor could emulate the property market in Shenzhen.
“Shenzhen property prices rose 350% to 400% at their 2021 peak, and even after cooling, prices maintained around 200% higher than 2005 levels.
“We expect Johor’s property market to follow a comparable long-term appreciation trend,” he said.
“Investors should therefore invest early in the Johor-Singapore Special Economic Zone (JS-SEZ) and surrounding areas before broader market enthusiasm fully sets in.”
Yoong pointed out that listed companies in the space are currently trading at attractive discounts to book value.
“In our view, well-managed equities may offer a more compelling proposition than direct property exposure,” he added.
Contrary to the prevailing tech-driven market enthusiasm, some observers caution that investors should remain prudent amid Malaysia’s ongoing investment cycle, driven by DCs, infrastructure, and broader development activity.
“Over the past six months, investors have focused heavily on the technology sector, particularly Malaysia’s semiconductor industry.
“That’s why many technology stocks have rallied significantly,” Ng pointed out.
Ng also highlighted the continued strong interest from foreign technology companies.
“Most of these investments are coming from multinational corporations across China, the United States and Europe,” he said.
As for the semiconductors sector, Ng said activity remains strong in places like Penang, where many multinational companies have established operations, while DCs, meanwhile, are largely concentrated in Johor.
That said, Ng noted some pullback over the past month, meanwhile valuations across the technology sector remained high-performing. “Going into 2H26, investors should remain cautious.
“Even for those seeking technology exposure, positions should be sized appropriately, as the sector has already appreciated significantly and may not warrant excessive concentration,” he said.
Ng highlighted that the key concern is less about volatility and more about valuations.
“When you buy at elevated prices, the downside risk increases if market sentiment changes, and that is where investors need to be careful,” he explained.
Yoong further clarified that the current surge in artificial intelligence and related stock prices reflects more of a euphoric pricing-in of expectations rather than long-term fundamentals, reinforcing a cautious investment stance.
“My cautious view on technology is more of a long-term consideration because there are still uncertainties, including developments in the United States later this year.
“Once those uncertainties are resolved, the outlook should become clearer and the sector is likely to stabilise,” Ng told StarBiz.
Analysts also flagged the construction, property, and plantation sectors as areas warranting caution.
Ng highlighted that the market is witnessing higher input costs, particularly for construction materials, while energy costs, including fuel prices, could also remain elevated, as those factors may weigh on developers’ margins.
He added that this could be a longer-term concern, as the US midterm elections in September or October may introduce additional uncertainty.
According to Kenanga Research, the US midterm 2026 election period is expected to create uncertainty, likely driving the US Federal Reserve to stay cautious and keep interest rates higher for longer.
It noted that investors should expect prolonged uncertainty and fewer policy surprises, rather than dramatic shifts in the US economic landscape.
“Once elections are over and the broader situation becomes clearer, we should have better visibility. “Furthermore, if geopolitical tensions ease and oil prices stabilise or decline, then the outlook for construction and property could improve next year.
“But for the second half of this year, cost pressures remain a concern,” Ng said.
The logistics sector also presents a cautionary case for investors.
Yoong said the sector is experiencing friction from transit delays and elevated fuel costs, which is widening the gap between institutional carriers and retail fuel-dependent freight operators.
He cautioned that any disruption in US–Iran negotiations could still pose upside risks to costs and supply stability.
“We saw more than 100 vessels passing through the Strait of Hormuz, which is great for the logistics sector, but genuine recovery might still have some way to go amidst the very volatile negotiation,” he pointed out. Additionally, Yoong flagged the plantation sector, citing climate-related pressures on crude palm oil (CPO) as a reason to reduce investment priority.
“We were bullish on the plantation sector, which has outperformed by leaps and bounds since 1H25.
“But it is time to take some money off the table, as El Niño will reduce yield and production, which in turn will drive up the price of CPO.
“Better to go long CPO futures if one has access to this,” he urged.
Yoong also added Malaysia’s consumer sector is seeing down-trading and middle-class contraction continue to persist as logistics costs permeate core inflation.
“While quality tourists would mitigate this, but then again, the latter spending is geared towards higher ticketed items, which doesn’t really benefit the listed entities on Bursa Malaysia, except maybe the real estate investment trusts owning shopping malls like Pavillion, KLCC Stapled, AL-Salam,” he explained.
Kenanga Research noted Malaysia is well-positioned to benefit from resilient growth, contained inflation, stable sovereign ratings, and a predictable monetary policy framework, alongside deep domestic liquidity. “Foreign investors turned net sellers of Malaysian bonds in May, with net outflows of RM4.3bil, but an early sign of reversal has since emerged in June, with RM5.3bil in net inflows recorded as of June 25, 2026,” it highlighted.
The research house highlighted that geopolitical developments in the Middle East will remain the primary near-term driver of capital flows, noting that while conditions are expected to gradually stabilise, the normalisation process is expected to be uneven.
It added that an improving ringgit outlook should further support investor demand, with foreign inflows likely to recover as global volatility moderates.
