KLCI: Malaysian Market Poised for Constructive 2026 Amid Resilient Growth and Strategic Initiatives
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
Malaysia’s equity market is anticipated to enter a more favourable period in 2026, transitioning from a challenging prior year. The benchmark KLCI is projected to reach 1,710 by year-end 2026, signalling a constructive outlook driven by robust domestic fundamentals and an improving global landscape.
Economic Backdrop and Policy Stance
The Malaysian economy is expected to sustain its growth momentum in 2026, albeit at a moderated pace of 4.5% GDP growth, slightly down from 4.8% in 2025. This growth will be underpinned by strong domestic demand, a healthy labour market, and consistent household spending. Critical investments, particularly those approved in 2025, are set to continue their momentum.
In terms of monetary policy, Bank Negara Malaysia (BNM) is expected to maintain its Overnight Policy Rate (OPR) at 2.75% throughout 2026, supported by stable growth and persistent inflationary pressures. The U.S. Federal Reserve is anticipated to implement one 25-basis point rate cut in 2026, bringing its target range to 3.25-3.50%. The Malaysian Ringgit is projected to trade within the range of RM4.05-RM4.15 against the U.S. Dollar.
Key Investment Themes for 2026
The market’s performance in 2026 will be shaped by several key themes. These include sustained foreign direct investment (FDI) inflows, largely a result of trade diversion and investment upcycles. The expansion of data centres, the green energy transition, advancements in the AI technology cycle, and the “Visit Malaysia Year 2026” campaign are also expected to be significant drivers. FDI saw a 13.2% year-on-year increase in 9M25, totaling RM285 billion, with technology-related sectors leading the charge.
Sectoral Outlook and Recommendations
The investment bank maintains an Overweight stance on eight key sectors: Banking, Construction, EMS, Healthcare, Industrial, Oil & Gas (O&G), Renewables, and Transportation. These sectors are poised for growth fueled by investment-driven opportunities and structural themes. Specifically:
- Construction: Expected to see 15% YoY earnings growth in 2026, driven by infrastructure projects and data centre developments.
- Healthcare: Projected 17% YoY earnings growth, supported by rising inpatient volumes and medical tourism.
- Industrial: Forecasted 17% YoY earnings growth, benefiting from data centre contracts, power infrastructure demand, and semiconductor expansions.
- Oil & Gas: Anticipates 26% YoY earnings growth, with a potential resolution to the Petronas-Petros dispute acting as a catalyst.
- Renewables: Strong growth momentum is expected from ongoing solar programmes and a robust order book.
A Neutral stance is maintained on Gaming, Plantation, Property, Rubber Gloves, Technology, and Telecoms. The Technology sector, while expecting a broader recovery in 2026 with strong demand for AI hardware and semiconductor components (global market to expand 26.2% to US$975bn), is still seen as lagging regional peers due to limited direct exposure to the core AI value chain.
Market Risks
Despite the generally positive outlook, several risks could temper market performance. These include a potential weaker-than-expected GDP growth, geopolitical tensions (particularly US-China relations), a stronger US Dollar against the Malaysian Ringgit, delays in domestic policy execution, and a possible slowdown in FDI inflows or MNC expansion plans.
