PETALING JAYA: The tourism sector is expected to see slower visitor growth in the second half of 2026 (2H26), but stronger spending by higher-value tourists from key markets such as China, Indonesia and India is expected to help support tourism receipts despite moderating arrivals.
Foreign tourist arrivals reached 26.6 million in 2025, surpassing pre-pandemic levels of 26.1 million recorded in 2019, while source markets have become more diversified, with growing contributions from China, Indonesia and India, according to BIMB Securities.
The research house said the key investment takeaway is to focus less on the number of tourists and more on where tourist spending flows, as Malaysia is increasingly attracting higher-quality visitors who spend more on shopping, dining, accommodation and healthcare services.
It added that such a shift supports tourism receipts even as visitor growth is expected to moderate in 2026 following a strong post-pandemic recovery.
“Visit Malaysia 2026 (VM2026) is not solely a tourism story but an investment theme driven by higher spending per visitor, stronger healthcare travel and selective sector opportunities,” BIMB Securities said in a report yesterday.
The research house said recent trends suggested Malaysia may be attracting a larger share of short-haul travellers with higher daily expenditure, indicating a shift from duration-driven spending towards yield-driven tourism receipts.
“Recent airline data showing high seat occupancy on short-haul routes suggest Malaysia is attracting more high-spending visitors. This means tourism receipts could remain strong even if the average length of stay does not increase significantly,” the research house said.
Foreign tourist arrivals totalled 10.6 million in the first five months of 2026 (5M26). This leaves the country still well short of its official VM2026 target of 47 million international visitors.
While arrivals for the 5M26 period represented a 1.1% year-on-year (y-o-y) increase, May’s arrivals alone contracted by 3.3% y-o-y, marking the third monthly decline of 2026.
Tradeview Capital fund manager Neoh Jia Man is of the view the unresolved conflict in the Middle East remains the biggest headwind facing Malaysia’s tourism sector in 2H26, overshadowing catalysts such as VM2026 and visa-free travel initiatives that are expected to support visitor arrivals.
“If the US-Iran war is not resolved anytime soon, there may be a further contraction in tourist arrival numbers going forward. The tourism sector is not completely out of the woods yet for 2H26.
“Some people may be optimistic on foreign tourist arrivals and are even expecting a rebound in 2H26 on the back of the visa-free policy for China and India as well as the VM2026 initiative.
“Nonetheless, I believe the headwinds from higher fuel prices arising from the Middle East tensions may outweigh those catalysts,” he told StarBiz.
Sunway University economics professor Yeah Kim Leng said the tourism sector, which has a large footprint in the economy, is expected to provide an additional boost to Malaysia in the face of multiple headwinds this year. The headwinds include the Middle East war and the ensuing oil price shocks, fuel shortages and flight disruptions.
However, Yeah said the latest US-Iran tit-for-tat bombing and the accompanying rise in fuel prices is concerning to the tourism sector’s outlook in 2H26 and that “the expected recovery in tourist arrivals in 2H26 may be dented”.
That said, IPPFA Sdn Bhd director of investment strategy and country economist Mohd Sedek Jantan said the direct impact of the Middle East conflict on the country’s tourism sector is likely to be “limited”.
He maintains that Malaysia is relatively resilient because its tourism market is geographically diversified, with a strong dependence on regional travellers rather than long-haul visitors.
“Regional travel historically recovers more quickly after geopolitical shocks due to shorter travel distances, lower costs and stronger intra-Asean mobility.
“Therefore, while geopolitical tensions remain an important downside risk, I believe they are more likely to moderate the pace of tourism growth than fundamentally alter the medium-term outlook,” he said.
Mohd Sedek added the moderation in foreign tourist arrivals in May should be viewed as a normalisation after strong post-pandemic rebound rather than cyclical weakening. He expects both tourist arrivals and tourism receipts to continue expanding in 2H26, although at a more moderate pace than in 2024 and 2025.
“The structural factors that will determine the outlook of the sector include regional income growth, particularly across Asean and China, which drives outbound travel demand. Another factor is air connectivity and seat capacity, which effectively determine the supply of international arrivals.
“Equally important is relative price competitiveness where Malaysia continues to benefit from a relatively competitive exchange rate, making it an attractive value-for-money destination compared with regional peers,” he said.
Beyond geopolitical risks, intensifying competition for tourist arrivals within South-East Asia is also expected to contribute to the moderation in tourism growth this year.
OCBC senior Asean economist Lavanya Venkateswaran said destinations such as Thailand, Indonesia, and the Philippines are all actively seeking to attract a larger share of regional and international travellers.
Chinese tourists remain an important source market for Malaysia and the broader region, but Lavanya noted tourist arrivals from China may become more evenly distributed across regional destinations.
“We believe Malaysia’s tourism sector is relatively insulated from developments in the Middle East given the composition of its visitor base. Tourist arrivals from Middle Eastern countries such as the United Arab Emirates, Saudi Arabia and Iran accounted for only around 0.4% of total arrivals in 2025,” she said.
Lavanya expects tourist arrivals to remain supported by visa-free travel for key source markets such as China and India, alongside VMY2026 promotional efforts and major festive periods IN 2H26, including Deepavali and Christmas.
“Our baseline expectation is for tourist arrivals growth in 2H26 to remain broadly similar to that seen in 1H26, at around 1% y-o-y,” she said.
In terms of sectors that stand to benefit from tourism growth, Neoh said tourism attraction operators such as Genting Malaysia and Aquawalk Group Bhd
are among the most direct beneficiaries, as higher tourist arrivals will typically translate into stronger visitor footfall for these attractions.
Meanwhile, Neoh said retail real estate investment trusts (REITs) and food and beverage companies have much more limited direct exposure to tourism growth.
“For retail REITS, although tourism receipts could help increase footfall, the benefits are usually only reflected in earnings when they undergo rental revisions. In addition, only a small proportion of tenants — typically around 30% — have rental agreements where rent is paid as a percentage of revenue. As such, while such businesses do benefit from tourism, the impact is not to a very big extent,” he said.
Moreover, Bank Muamalat Malaysia Bhd head of economics, market analysis and social finance Dr Mohd Afzanizam Abdul Rashid said aviation, ground transportation, organized tours, healthcare provider, eco-tourism and shopping haven are some of the sectors that will benefit from higher number of tourist’s arrivals.
BIMB Securities said beyond conventional tourism medical tourism is emerging as a powerful structural growth driver, supported by rising regional demand for high-quality and affordable specialist care. As such, the research house said IHH Healthcare Bhd is its preferred medical-tourism proxy.
“Supported by competitive pricing, strong clinical capabilities, growing regional demand and the rollout of Malaysia Year of Medical Tourism 2026, we believe the sector remains in the early stages of a multi-year structural growth cycle. For listed healthcare providers, the key attraction lies not only in higher patient volumes but also in the superior revenue intensity and profitability associated with foreign patients,” the research house said.
Beyond healthcare, BIMB Securities said for the consumer sector, while retailers remain among the most direct beneficiaries of tourist spending, particularly given that shopping represents the largest component of tourism expenditure, it expects sales growth to moderate alongside softer tourist arrival growth in 2H26, largely due to the Middle East tensions.
BIMB Securities noted that while foreign tourists account for only a small portion of aggregate retail sales nationally, their spending is disproportionately concentrated in urban malls, premium retail locations, airports and key tourism destinations.
“Retailers with meaningful exposure to shopping expenditure are likely to experience the greatest moderation in growth, while food & beverage operators and consumer staples companies should remain comparatively resilient,” the research house said.
