KUALA LUMPUR (July 14): Malaysian equities are expected to hold above the 1,700-point level towards year end, supported by stronger corporate earnings and a more favourable domestic policy backdrop, CIMB Securities said.

It expects the benchmark index to strengthen in the fourth quarter (4Q2026) as earnings visibility improves and year-end window dressing supports the market.

At the time of writing on Tuesday, the benchmark index was at 1,707.44, up nine points or 0.53%.

CIMB Securities nudged its end-2026 FBM KLCI target one point higher to 1,746 points, implying 5% upside from the end-June level of 1,664 points and 4% above its end-2025 close of 1,680 points.

Cimb Securities said in a note, however, that in the near term, the KLCI is expected to trade within a range in 3Q2026 as investors contend with geopolitical uncertainty, election-related volatility, uneven earnings and growing risks from the El Niño weather pattern.

Its latest revision followed the inclusion of IOI Properties Group Bhd (KL:IOIPG) in the benchmark index. The target is based on a forward price-earnings multiple of 15.5 times, compared with the KLCI’s current valuation of about 14.4 times.  

The research house forecast KLCI earnings to grow 7.5% in 2026 and 5.5% in 2027, with banks and chemical companies contributing almost half of this year’s growth.

Bank earnings are expected to rise 7.4%, supported by stronger lending, higher non-interest income, wider net interest margins and low credit costs.

Chemical-sector earnings are forecast to more than double, driven mainly by stronger selling prices and margins at PETRONAS Chemicals Group Bhd (KL:PCHEM), as well as smaller losses at its Pengerang operations.

CIMB Securities said the MY Value Up Programme, the GEAR-uP initiative and the proposed expansion of the KLCI to 50 companies could gradually lift market valuations.

However, the impact would depend on companies producing credible plans to improve governance, capital allocation and shareholder returns.

Foreign shareholding in Malaysian equities fell to a record low of 18.3% at end-June after foreign investors sold a net RM3.1 billion worth of shares in the first half of the year.

CIMB Securities said the pool of shorter-term foreign investors had already become smaller, reducing the risk of further heavy selling.

The research house recommended accumulating fundamentally strong companies during periods of market weakness, particularly those with resilient earnings, pricing power and disciplined capital allocation.

It is 'overweight' on banking, building materials, healthcare, oil and gas, plantations, technology, telecommunications and transport.

Its top picks are Dialog Group Bhd (KL:DIALOG), Malayan Cement Bhd (KL:MCEMENT), IOI Corp Bhd (KL:IOICORP), QL Resources Bhd (KL:QL), KPJ Healthcare Bhd (KL:KPJ), Public Bank Bhd (KL:PBBANK), Telekom Malaysia Bhd (KL:TM), Gamuda Bhd (KL:GAMUDA), Hong Leong Bank Bhd (KL:HLBANK), RHB Bank Bhd (KL:RHBBANK), Tenaga Nasional Bhd (KL:TENAGA), Malaysian Pacific Industries Bhd (KL:MPI) and Axis Real Estate Investment Trust (KL:AXREIT).

Key risks include renewed geopolitical tensions, additional US tariffs, stronger-than-expected El Niño conditions, rising labour and fuel costs, delays in policy implementation and weaker corporate earnings.