KUALA LUMPUR: Malaysia enters the fourth quarter of 2026 with resilient economic fundamentals, although elevated global yields, oil prices and continued foreign fund outflows could keep market sentiment cautious, according to Malacca Securities.
Manufacturing expanded 7.3%, driven by a 14.4% increase in electrical, electronic and optical products amid strong artificial intelligence (AI) demand, while the information and communication sector grew 8.3% on continued data-centre expansion.
“Malaysia enters 4Q26 with resilient fundamentals despite cautious sentiment,” Malacca Securities said.
“Gross domestic product (GDP) growth accelerated to 6.0% year-on-year in the second quarter, while continued investment in data centres, semiconductors, power infrastructure, New Industrial Master Plan 2030 and National Energy Transition Roadmap provides structural support,” the research house said.
On the currency front, the ringgit generally traded between RM4.00 and RM4.15 against the US dollar in the third quarter after weakening from around RM3.90 earlier in the year, before ending September at around RM4.07-RM4.08.
Malacca Securities said elevated US Treasury yields could keep the ringgit on a softer footing heading into the fourth quarter.
“While currency movements are not our primary investment thesis, a weaker ringgit should provide an additional earnings tailwind for export-oriented companies with sizeable US dollar-denominated revenue, particularly within the technology and electrical and electronics sectors.”
However, foreign investors recorded net outflows of RM2.65bil in the third quarter, although this was lower than the RM5.12bil outflow in the preceding quarter.
The FBM KLCI also retreated more than 6% from its quarterly peak of 1,753.22 points.
“Looking ahead, sentiment may remain cautious amid uncertainty over the timing of 16th General Election, elevated global bond yields and higher oil prices.
“Meanwhile, the relative strength of US equities, supported by the ongoing AI supercycle, could continue to draw global liquidity away from emerging markets, keeping foreign participation subdued and limiting the FBM KLCI’s near-term upside,” Malacca Securities said.
Still, it noted that the FBM KLCI was trading at a price-earnings ratio of 14.3 times, below its 10-year average of 16.7 times.
“Entering 4Q26, attention is shifting towards Malaysia’s resilient domestic fundamentals and Budget 2027,” it said, adding that it expects selective interest in companies with visible earnings growth and exposure to data centres, power infrastructure and semiconductors.
The FBM KLCI slipped 0.8% in the third quarter, compared with gains of 3.6% for the FBM Small Cap Index and 14.7% for the FBM ACE Index.
Construction was the strongest-performing sector, rising 15.4%, followed by energy at 12.5% and utilities at 9%.
Property fell 8.2%, consumer products and services declined 6.9% and REITs lost 4.9%.
For the fourth quarter, Malacca Securities said it favours a bottom-up approach focused on earnings visibility, particularly in technology and infrastructure.
Technology forms the core of its positioning, supported by AI and semiconductor investment, digitalisation and a softer ringgit, which could provide an earnings tailwind for exporters with US dollar-denominated revenue. Its semiconductor selections include QES Group, UMS Integration, UWC and ViTrox.
The research house is also positive on selected construction and infrastructure companies that could benefit as investments in data centres, semiconductors and electricity infrastructure move from announcements to execution.
Its 4Q26 selections comprise Critical Holdings, Cheeding Holdings, Hartanah Kenyalang, Kossan Rubber Industries
, Cloudpoint Technology, Infomina, OGX Group, QES Group, Scicom (MSC), TT Vision Holdings, UMS Integration, UWC and ViTrox.
