RHB Research remains constructive on the outlook for Malaysian equities, maintaining its end-2026 target of 1,750 points for the FBM KLCI despite expecting markets to remain volatile amid geopolitical, inflation and political uncertainties.
The research house said investors should continue adopting a “buy on weakness” strategy, supported by abundant market liquidity, resilient domestic economic fundamentals and expectations of a more accommodative US monetary policy over the medium term.
“Our argument for investors to remain long domestic equities is predicated on robust liquidity conditions, sanguine macroeconomic forecasts and dovish views on US monetary policy, coupled with populist policy undertones given the imminent polls,” RHB said in its latest market strategy report.
However, it cautioned that investors should maintain a trading mindset as markets continue to face evolving risks, including persistent global inflation, uncertainties surrounding former US President Donald Trump’s policy agenda, concerns over elevated valuations in US financial markets and artificial intelligence-related stocks, as well as risks to corporate earnings.
The research house believes investors should look beyond the recent US-Iran conflict, arguing that both countries have strong incentives to preserve the recently agreed ceasefire.
RHB Economics assigns a 60% probability to its base-case scenario, which assumes the ceasefire between the United States and Iran will hold, the Strait of Hormuz will remain open, and global crude oil prices will stay well below the peaks reached during the conflict.
Under this scenario, Malaysia’s economy is projected to grow 4.7% in 2026, supported by stronger-than-expected exports, resilient domestic demand and easing external risks.
The firm also believes financial markets may be underestimating the likelihood of monetary easing in the United States, maintaining its expectation that the US Federal Reserve will leave interest rates unchanged throughout 2026 before implementing two rate cuts in 2027.
RHB said this divergence between its expectations and current market pricing presents trading opportunities for investors.
Nevertheless, the research house continues to assign a 30% probability to a downside scenario involving renewed geopolitical tensions.
Should the conflict in the Middle East escalate again during the second half of 2026, prolonged supply disruptions and elevated commodity prices could slow Malaysia’s economic growth to around 4.0%, it said.
Despite these risks, RHB maintains that domestic equities remain fundamentally attractive.
It reiterated its year-end 2026 FBM KLCI target of 1,750 points, based on a forward price-to-earnings multiple of 15.5 times, while acknowledging that upside is likely to be constrained as investors rotate between sectors and stocks in response to changing market conditions.
The research house expects corporate earnings and company fundamentals to remain the key drivers of market performance over the coming quarters.
Given the uncertain external environment, RHB recommends anchoring portfolios around defensive sectors including energy, plantations, healthcare, consumer, real estate investment trusts (REITs) and telecommunications.
It also retains an overweight stance on banking, oil and gas, property, construction, basic materials, technology and transport, while expecting continued rotational interest into laggard sectors as investors seek trading opportunities in a range-bound market.
“Strong support on the downside justifies our buy on weakness approach, while evolving risks suggest portfolio management needs to be anchored on a defensive bedrock,” the research house said.
