PETALING JAYA: The artificial intelligence (AI)-driven technology rally may have lost some momentum globally following profit-taking in recent days, but the outlook for the Malaysian market still appears sanguine for the time being.
Technology stocks around the world, including in South Korea and Taiwan, came under pressure in recent days after investors locked in gains following a prolonged rally.
The pullback weighed on major US indices, including the Nasdaq, amid concerns over elevated valuations, higher US Treasury yields, and expectations that interest rates may remain higher for longer.
Regional markets also turned cautious as investors reassessed risk appetite, although there was some recovery seen last Friday while US markets were closed for its Independence Day on July 3.
Despite the near-term volatility, analysts believe Malaysia remains well positioned to benefit from a multi-year investment cycle driven by data centres, AI infrastructure, advanced manufacturing, and foreign direct investment.
The FBM KLCI recovered some of its recent losses and rose at its Friday close by 17.22 points or 1.04% to 1,679.05.
JPMorgan remains overweight on Malaysian equities for the second half of financial year 2026 (2H26) despite expecting a stronger US dollar and renewed foreign fund outflows.
The investment bank said the country’s private-sector capital expenditure cycle continued to strengthen, with fixed asset investment rising to 22% of gross domestic product (GDP), reinforcing its view that investment-led growth still has room to run and is not fully reflected in present market valuations.
It noted Malaysia had attracted RM567bil in cumulative approved foreign direct investment over the past three years, with a 77% realisation rate, supporting investments across AI infrastructure, power, industrial parks and advanced manufacturing.
The bank also highlighted the expanding global AI investment cycle, with worldwide AI-related capital expenditure now expected to reach US$5.5 trillion by 2030, up from an earlier estimate of US$5.1 trillion.
JPMorgan estimates Malaysia’s data centre pipeline has expanded to 13 gigawatts, exceeding the combined pipeline of Indonesia, Thailand and Singapore, reinforcing its position as Asean’s leading AI infrastructure market.
“Unlike previous investment cycles driven by commodities or government infrastructure spending, the current expansion is increasingly funded by corporates, hyperscalers and multinational companies, providing better visibility and longer investment duration,” it said.
JPMorgan believes market positioning remains supportive despite foreign investors remaining net sellers this year.
Foreign ownership of Malaysian equities has fallen to a historical low of 18.3%, while domestic mutual funds still hold 6.4% of their assets under management in cash, leaving room for further deployment into equities.
It noted domestic institutional investors have been steadily increasing exposure to technology stocks, recording the largest monthly accumulation on record in May.
Banks remain attractive portfolio anchors due to resilient asset quality, dividend yields of around 6% and potential capital management upside.
JPMorgan maintained its end-2026 target for the FBM KLCI at 1,800 points, underpinned by projected earnings per share (EPS) growth of 7% and a forward price to earnings multiple of 14 times.
Separately, CGS International (CGSI) Research remains positive on Malaysian equities into 2H26, although it has trimmed its end-2026 FBM KLCI target to 1,780 points from 1,810 previously to reflect a higher political risk premium ahead of the expected general election.
It expects volatility to increase as state elections are held but believes policy continuity is likely regardless of the eventual outcome given Malaysia’s fragmented political landscape.
“We recommend investors use periods of volatility to accumulate quality names.”
CGSI Research added Malaysia’s corporate earnings outlook remains robust, forecasting FBM KLCI EPS growth of 8.9% in 2026 and 9% in 2027.
It expects the second quarter of financial year 2026 (2Q26) to mark the trough in corporate earnings as cost pressures stemming from Middle East disruptions begin to ease before profits recover in 3Q26.
The research house also raised its 2026 GDP forecast to 5% from 4.8%, citing stronger external demand, resilient domestic consumption, targeted fiscal support, a stable labour market and firmer tourism activity.
Its economists also expect the ringgit to strengthen further, revising its end-2026 forecast to RM3.95 against the US dollar from RM4 previously.
It recommends investors focus on post-conflict structural themes including energy security, renewable energy, rebuilding global industrial capacity, food security and alternative transportation.
Among its preferred beneficiaries are plantation companies such as SD Guthrie Bhd
, Hap Seng Plantations Holdings Bhd and Ta Ann Holdings Bhd, alongside industrial names including Sime Darby Bhd, Hong Leong Industries Bhd, Velesto Energy Bhd and MISC Bhd.
CGSI Research said Malaysian equities remain inexpensive relative to historical levels despite recent gains, with valuations still below post-pandemic averages.
Meanwhile, UOB Kay Hian (UOBKH) Research is advocating a “barbell strategy” as investors navigate heightened geopolitical uncertainty and persistent inflation concerns.
It said portfolios should balance resilient defensive companies capable of weathering a higher-for-longer interest rate environment in the United States with selected cyclical opportunities offering attractive risk-reward profiles as market sentiment gradually improves.
“We anchor portfolios in large-cap domestic champions with resilient earnings, strong cash flow generation, and defensive characteristics, while selectively accumulating fundamentally sound laggards offering attractive valuations and company-specific catalysts for earnings upgrades and valuation re-rating,” UOB Kay Hian (UOBKH) Research said.
It recommends maintaining tactical exposure to companies benefiting from Middle East-related developments and long-term structural growth themes.
The brokerage noted that the FBM KLCI had declined 1.1% in June amid heightened volatility driven by geopolitical tensions, higher US Treasury yields and persistent inflation concerns.
Foreign investors remained net sellers during the month, recording RM2.4bil of outflows, although domestic institutions absorbed much of the selling by purchasing RM1.9bil worth of equities, alongside RM446mil being bought by retail investors.
For July, UOBKH Research anticipates investors will likely continue rotating into defensive sectors.
Its preferred stocks include CIMB Group Holdings Bhd, Coraza Integrated Technology Bhd, Gamuda Bhd, MR DIY Group (M) Bhd, Petronas Dagangan Bhd, Oxford Innotech Bhd, SD Guthrie, Solarvest Holdings Bhd, Tenaga Nasional Bhd and Yinson Holdings Bhd.
