PETALING JAYA: Analysts and market observers have warned that among the many sectors, the consumer sector or more specifically, the consumer discretionary segment remains one of those that investors should be more wary of, moving well into the second half of the year (2H26).
The consumer discretionary sector basically refers to non-essential goods and services that people purchase when they have extra money.
In the second quarter (2Q26) results season that just wrapped up, analysts said the consumer sector as a whole was one of the weakest performers, with more than a handful of companies reporting softer-than-expected sales as consumers remained cautious on their spending amid elevated operational costs.
This weighed on their earnings, and more so for those which sold discretionary products. For companies which reported better earnings, the question is can this be sustained as the impact of global uncertainties like the Middle East conflict continues to rage on.
Mercury Securities head of equity research Ahmad Ramzani Ramli said consumer discretionary alongside petrochemicals and selected oil and gas services were less likely to deliver a sustained earnings recovery in 2H26.
“Elevated costs and moderate household spending constrain retailers’ margins, softer chemical selling prices and plant disruptions weigh on petrochemicals, and oil and gas earnings remain dependent on project awards and execution,” he told StarBiz.
Fortress Capital chief executive officer Datuk Thomas Yong said besides his neutral stance on consumer discretionary, he was also cautious on property, and telecommunications.
“But this is a result of a lack of near-term catalysts rather than deep structural concerns,” Yong said. “We view these sectors as lacking immediate growth drivers rather than facing significant downside risks.”
Seasoned stock market investor Ian Yoong said earnings of the discretionary segment of the consumer sector will be adversely impacted by lower consumer spending and increased costs in 3Q26.
“Consumer spending however should recover in 4Q26.
“The consumer staples sector as a whole is fairly valued at about 26 times 12-month trailing and about 10 to 15 times for the consumer discretionary sector, the latter impacted by declining earnings,” he said.
Meanwhile, Ahmad also issued a warning that banks face subdued growth from net interest margin compression, softer non-interest income and higher credit costs in the quarters ahead although dividends offer support.
“The sharp glove earnings rebound also remains vulnerable to weaker selling-price guidance and uncertain cost pass-through,” he said.
He said selected media and aviation companies also warrant caution, but their challenges are more company-specific.
“Overall, businesses with limited pricing power or execution delays are likely to lag the broader recovery,” Ahmad added.
MBSB Research in its results wrap-up report said overall, the recently concluded second quarter earnings season was largely on target while the minor upward revisions to aggregate forecast earnings were partly attributable to positive guidance against the backdrop of resilient macroeconomic performance.
Going forward, the research house said it reckoned the equity market would remain largely sanguine underpinned by continued resilient gross domestic product as well as positive earnings growth this year.
