KUALA LUMPUR (Oct 8): Malaysia’s corporate earnings growth could slow next year from higher interest rates, cost pressures, and a general slowdown in consumer spending, said Kenanga Investment Bank.
Bank Negara Malaysia could raise the overnight policy rate in 2027, affecting real estate investment trusts, consumer discretionary firms, property developers and other cyclical stocks, the research firm said in its strategy note for the final quarter of 2026.
“Historically, consumer sentiment and in turn stock prices become more challenged during rate hike periods,” Kenanga said.
The research house is now forecasting the combined earnings growth of the KLCI constituents to decelerate to 3.5% in 2027 from 12.2% this year.
The US Federal Reserve raised interest rates in September for the first time in three years, sending the yield on the 10-year benchmark Malaysian Government Securities to as high as 4.18% before moderating. Yields, however, have begun climbing again.
Kenanga is now predicting that Malaysia’s central bank could follow suit with an increase of 25 basis points to the overnight policy rate before the end of June 2027, noting that investors will demand additional returns to hold equities over bonds.
Banking stocks have already taken a hit and are pricing in a 6% decline in earnings from the rising yields, the house flagged.
Further, automotive firms could be dragged by declining total industry volume while the property sector could see lower transactions and plantation companies could report a contraction in output, Kenanga said.
Overall, the house cut KLCI year-end target for 2026 to 1,700 from 1,775. The KLCI ended Wednesday at 1,611.
For strategy, Kenanga is recommending a barbell strategy “with one side anchored by sectors that have a margin of safety such as banking and healthcare following recent retracements”.
On the other end of the barbell, the house is betting on “a portfolio of structural growth themes, which would be less impacted by near-term economic uncertainties that may impact cyclical sectors more”.