PETALING JAYA: Bursa Malaysia has recovered some of its losses following a huge sell-off on Tuesday, but analysts are not convinced that a full recovery is on track.
Berjaya Research head of research Kenneth Leong said the “durability” of any recovery is likely to remain dependent on the external backdrop particularly on movements and changes in US Treasury yields, oil prices, the US interest-rate outlook, geopolitical developments and foreign fund flows.
Domestically, Leong reckoned that the upcoming Budget 2027 may provide a near-term boost to overall market sentiment.
“We see scope for the budget to provide a near-term sentiment boost, particularly through measures supporting domestic consumption, infrastructure spending, renewable energy, data-centre investments and selected high-value industries,” he told StarBiz.
On Tuesday, the FBM KLCI shed 1.56%, to finish at 1,643.96, its lowest level since December 2025. Year-to-date, it has declined more than 2%.
The index finished yesterday up 0.44% to 1,651.17.
Malacca Securities head of research Loui Low also said Budget 2027 should provide some support to market sentiment, particularly if it delivers targeted measures to sustain domestic growth and investment.
“However, the budget alone may not fully reverse market weakness if elevated global yields and oil prices persist.
“With the FBM KLCI having corrected sharply from its August high, the Oct 9 budget could nevertheless refocus attention on domestic catalysts and provide a platform for selective recovery into the final quarter,” he said.
Trident Analytics chief research officer Peter Lim Tze Cheng said historically, the market looked forward to the unveiling of budgets.
“However, in recent years, the market has been more worried about what’s going to be announced in the budget,” he said.
“In recent years, we have seen a slew of tax expansions, will there be new taxes in 2027? That’s the main concern now.”
Lim also noted the uncertainties surrounding the next general election (GE) may continue to limit any upside for the local market.
MIDF Amanah Investment Bank Bhd head of research Imran Yassin Md Yusof said the current weak sentiment in the market stemmed from external concerns such as another possible round of conflict escalation in the Middle East, now expanded to between Saudi Arabia and the Houthis in Yemen.
“We believe that any signs of de-escalation will improve sentiment, as evident by the periods of de-escalation we saw this year,” he said.
Imran said domestically, Budget 2027 may provide some support – especially as he expects it to be mildly expansionary, which should still bolster the economy and construction sector.
“We also expect that the government will provide additional assistance to the rakyat in light of potential inflationary pressures caused by the conflict.”
Moreover, Leong said targeted fiscal support while maintaining the government’s fiscal consolidation path could help improve investor confidence and encourage bargain hunting, following the recent market pullback where valuations have turned more attractive.
The FBM KLCI is now trading at prospective price earning multiples of 14.6 times and 13.7 times for 2026 and 2027, respectively, which is below its five-year historical average of 15.2 times, he pointed out.
“While Budget 2027 could offer a near-term catalyst, a sustained market recovery would likely require greater stability in global risk sentiment and external macro conditions,” Leong reiterated.
Low said he believes the recent sell-off reflects external headwinds and domestic uncertainties, rather than a deterioration in Malaysia’s fundamentals.
“Seasonality is also at play, with September historically the weakest month for the FBM KLCI, averaging a 1.6% decline since 2001 with only a 34.6% positive hit rate. In contrast, December has historically been the strongest month, averaging a 2.3% gain with a 92% positive hit rate,” Low added.
Hong Leong Investment Bank (HLIB) Research said in a note to clients that the FBM KLCI was off to a good start in the second half of 2026 (2H26), rebounding by as much as 5.1% towards late August – partly aided by Malaysia’s robust second quarter growth figures.
Unfortunately, the recovery did not sustain as the local bellwether index retraced 4.5% from its 2H26 peak, watering down its third quarter return to a mere 0.4% as at Sept 28, it said.
HLIB Research said in its previous outlook report, it had flagged four headwinds for the Malaysian market in 2H26, namely, supply chain pressures from the Iran war, hawkish US Federal Reserve expectations, the FBM KLCI expansion overhang, and GE16 jitters.
“The first three, in our view, are playing out to varying degrees, though the last remains to be seen,” it said.
HLIB Research said considering that the upcoming budget could potentially be the last one before GE16, the research house envisions it to be a “rakyat-friendly” one.
“Furthermore, most of the painful (but necessary) economic reforms have already been implemented.
“Similar to past budgets, we expect an increase in cash aid via the Rahmah schemes to RM17bil to RM18bil (2026: RM15bil) – which may include another round of RM100 Sumbangan Asas Rahmah handout,” the research house said.
It added that under Budget 2027, the issue of wages should be addressed.
“As the minimum wage is legally required to be reviewed biennially, with the last revision in 2025, we believe that an increase in the monthly floor salary could be on the cards – potentially from RM1,700, to RM1,900 to RM2,000.”
