Budget 2026 marks a decisive shift in Malaysia’s economic narrative — away from mega projects and toward long-term structural transformation driven by technology, energy transition, and the well-being of its people.
With a total expenditure of RM470 billion, comprising RM338.2 billion in operating expenditure and RM81 billion in development expenditure, the first budget under the 13th Malaysia Plan underscores prudence and focus. Growth-oriented reforms and targeted investments suggest Malaysia is prioritising quality over scale.
AI and Tech Ecosystem Take Centre Stage
One of the clearest signals from Budget 2026 is the government’s commitment to pushing Malaysia further up the technology value chain. A RM5.9 billion cross-ministerial allocation has been set aside for AI research, development, and adoption, with the National AI Action Plan 2030 set to guide implementation.
Kenanga Research sees this as a “holistic approach” to digital transformation — one that spans government, industry, and academia. Potential beneficiaries include:
GAMUDA and DNEX, through their partnership in offering Google Distributed Cloud services under the RM2 billion Sovereign AI Cloud project;
VSTECS and SNS, which could benefit from rising ICT hardware demand; and
LGMS, positioned to capture growing cybersecurity needs amid new tax incentives for AI and cybersecurity upskilling for MSMEs.
Meanwhile, the government’s continued funding for risk capital and prototyping is expected to nurture Malaysia’s fabless, IP design, and advanced-packaging ambitions — with KGB, INARI, MPI, OPPSTAR, and other national tech champions identified as key beneficiaries.
Energy Transition Gains Traction
Kenanga highlights Budget 2026 as a significant step in Malaysia’s energy evolution. The introduction of a carbon tax in 2026 marks a milestone in climate policy, with initial focus on high-emitting sectors such as iron, steel, and energy.
While the tax details are pending, Kenanga notes its alignment with the National Carbon Market Policy and Climate Change Bill, underscoring the shift toward a low-emission economy. The firm adds that the government’s success in channeling carbon tax revenue effectively will determine its long-term impact.
In the renewables space, the outlook remains bright. A new LSS6 solar programme worth RM6 billion — potentially adding 2GW of capacity — reaffirms Malaysia’s ambition to expand clean energy adoption. Kenanga’s top sector pick remains Solarvest Holdings (SLVEST, TP: RM3.56), supported by robust demand from the Corporate Green Energy Supply (CRESS) initiative, already worth RM3.5 billion.
Automotive Sector: Localisation Over Luxury
Budget 2026 also recalibrates Malaysia’s electric vehicle (EV) strategy. Incentives for completely built-up (CBU) imported EVs will cease on 1 January 2026, reinstating import and excise duties of up to 100%.
This, according to Kenanga, will encourage a more locally reliant EV rollout, benefiting MBM Resources (TP: RM7.00) and DRB-HICOM (TP: RM0.70) through their affordable vehicle segments, particularly as national car excise exemptions continue for taxi and rental fleets.
Meanwhile, PETRONAS Dagangan (PETDAG, TP: RM21.20) could see stability amid slower EV adoption, while Yinson Holdings may gain from future rounds of green financing via KWAP’s Dana Pemacu fund.
Tourism and Well-Being Take Priority
The government’s emphasis on people-centric growth was evident through measures aimed at improving health security and household resilience.
Healthcare initiatives and flexible EPF withdrawals for insurance and medical needs underpin the well-being agenda, while RM15 billion in cash assistance provides near-term relief. Though Kenanga views the consumer boost as modest, mid-February cash distributions equivalent to 4% of disposable income could lift sales for MR.DIY, Ecoshop, and 99Smart outlets.
Tourism also received a notable boost with RM700 million allocated for Visit Malaysia 2026, up from RM550 million, expected to attract 47 million visitors and RM329 billion in tourism receipts. Beneficiaries include Genting Malaysia (GENM, TP: RM2.00) and KLCC REITs, riding on stronger hotel and retail demand.
Construction, Property and Banking: Neutral Outlook
Despite a modest rise in development expenditure, Budget 2026 offered little in terms of fresh mega projects. There was no new information on MRT3 or Johor’s ART system, leading Kenanga to maintain a neutral view on construction.
However, ongoing water infrastructure projects could benefit Engtex (TP: RM0.62), while WCT (TP: RM1.25) and Kimlun (TP: RM1.51) may see upside from the Pan Borneo and Sarawak–Sabah Link Road developments.
Property measures were mostly extensions of existing programmes, dampening short-term excitement. Kenanga expects the banking sector to remain mildly positive, supported by resilient consumer activity and private-public partnership opportunities.
Market View: Staying Tactical Post-Budget
Historically, the FBM KLCI tends to remain flat or soften slightly in the month following a budget. Kenanga therefore maintains its end-2025 KLCI target at 1,640, adopting a tactical post-budget stance.
The research house continues to favour sectors aligned with Budget 2026 priorities — technology, automotive, renewable energy, water, and utilities — while advising caution on property and consumer counters that rallied pre-budget.
Kenanga concludes that Budget 2026 may not have the flash of big-ticket announcements, but it demonstrates policy maturity, reform continuity, and investment in catalytic sectors that could define Malaysia’s economic resilience over the next decade.
Budget 2026 rewards focus rather than scale — directing capital toward the foundations of future growth: AI, sustainability, and well-being.
