High-value sectors main thematic play of budget

PETALING JAYA: Construction, industrial, renewables, technology and electronics manufacturing services (EMS) are expected to be the key thematic plays following Budget 2026, according to analysts.

This outlook is underpinned by the government’s continued emphasis on high-value sectors, including a strategic push in artificial intelligence (AI) to strengthen the upstream technology ecosystem, as well as a focus on renewable energy (RE) development.

In its post-Budget 2026 review, Phillip Capital Research reiterated its “overweight” stance on these sectors, citing strong thematic drivers.

However, it maintained a “neutral” outlook on the overall market, keeping its end-2025 FBM KLCI target unchanged at 1,610 points.

“While global uncertainties persist, the government’s 2026 gross domestic product growth forecast of 4.1% (2025: 4.5%) reflects a cautious outlook amid ongoing trade tensions and external risks.

“Policy focus remains on strengthening long-term competitiveness through investments in RE, electrical and electronics and AI, supported by active private participation,” the research firm said.

The research firm said the Malaysian market continues to lag global peers with valuations remaining undemanding, offering “selective opportunities” for positioning.

Yesterday, the local equity market closed down 7.06 points to 1615.19 points following escalation of trade tensions between Washington and Beijing over the weekend.

US president Donald Trump announced plans to impose 100% tariffs on China in retaliation for its restrictions on exports of rare earth elements and equipment.

Likewise, Kenanga Research is adopting a tactical positioning approach post-budget amid ongoing uncertainties.

It views the impact on the construction sector as “neutral”, given that development expenditure is projected to increase slightly to RM81bil.

While still sizeable, it noted no new details were provided on the Mass Rapid Transit 3 project and on the Johor Electrified Double-Track Project.

“Beneficiaries or sectors regarded as positive are tech, automotive, utilities and RE, and water.

“For the rest, which are mildly ‘positive’ to ‘neutral’, we continue to see room.

“Anecdotal evidence suggests that the market tends to give back some of its pre-budget gains within a one-month horizon,” said Kenanga Research, which is leaving its FBM KLCI year-end target of 1,640 points unchanged for now.

It expects sovereign ratings to be unchanged in 2026 too.

The consumer sector stood out as the biggest beneficiary of Budget 2026, supported by the repeat of the RM100 Sumbangan Asas Rahmah payout in February 2026 and tourism spending from Visit Malaysia 2026, which are positive for companies like 99 Speedmart Holdings Bhd, Nestle (M) Bhd and Spritzer Bhd.

On the flip side, sin sectors could face margin pressure from higher excise duties on alcohol and tobacco.

Excise duties on alcoholic beverages will increase by 10% effective Nov 1, 2025, from RM175 per liter of alcohol to RM192.5 per liter.

The increase would be the first since 2016, and based on past experiences, the tariff hike should have a neutral to positive impact on brewers’ profitability given the relatively inelastic demand, CGS International Research (CGSI Research) said.

Meanwhile, the introduction of a carbon tax next year adds compliance costs, initially impacting the iron, steel and energy sectors.

“The budget was within our expectations with no major tax shocks or subsidy removals, while measures were included for all segments of the rakyat.

“Nevertheless, from a market perspective, we felt that the budget had a rather muted tone.

“We maintain our year-end FBM KLCI target at 1,690 points.” CGSI Research added.