Index likely to close only slightly above 1,600
PETALING JAYA: Malaysia’s stock market is limping toward the year’s finish line, with the benchmark FBM KLCI hovering around levels that are well short of bullish forecasts made just 10 months ago.
The index fell about 2% year-to-date, painting a starkly different story across the region.
Singapore’s Straits Times Index is up 16% in the same period, while China’s Shanghai Composite Index 19%, Japan’s Nikkei 25% and Hong Kong’s Hang Seng 31%.
India’s Sensex has added around 7% to reach record-high levels and South Korea’s Kospi tops the region with a 61% surge.
In Kuala Lumpur, however, the mood has been one of cautious disengagement.
FBM KLCI has spent most of the year range-bound, pressured by weaker-than-expected corporate earnings, persistent foreign fund outflows and tariff-related headwinds clouding the export outlook.
Analysts, who began 2025 projecting year-end targets as high as 1,840 points are now scaling back expectations, with most forecasting the index to close only slightly above 1,600.
FBM KLCI closed yesterday at 1,602.69 points, down by about 14 points. A total of 699 securities declined against 355 advancers, while 492 remained unchanged.
While local institutional funds are holding the fort, the stock market is in dire need of more liquidity as it maneuvers near-term volatility and poor investor sentiment.
In comparison to key regional markets, Malaysia has seen the most foreign fund net outflows this year up till Oct 17 at US$4.2bil, outpacing Indonesia, the Philippines, Thailand and Vietnam.
The net outflows brought down foreign shareholding of Malaysian equities to a record-low of 18.7% as of Sept 2025.
Against such a backdrop, BIMB Securities head of research Mohd Redza Abdul Rahman expects the Malaysian stock market to continue limping, going forward.
“Our view has turned ‘neutral’ on the market. We’ve revised FBM KLCI’s 2025 year-end target from 1,648 points to 1,614 points on Sept 4 and have maintained that target,” he told StarBiz.
To put it into perspective, BIMB Securities began the year with a forecast of 1,839 points.
Mohd Redza explained that other stock market indices such as those in the United States, South Korea, China and Hong Kong have performed strongly this year as they are laden with technology stocks.
These stocks were behind the huge rise of such indices.
“Here in Malaysia, we don’t have that in our FBM KLCI constituents.”
FBM KLCI’s market capitalisation is largely built up by the more defensive banking and utilities stocks.
For example, banking stocks alone control nearly 40% of the index’s weightage, as of Oct 21 based on data provided by MBSB Research.
The research house also noted that it is likely that the current top 30 blue chips will remain status quo for the upcoming December 2025 review, even though its analysis showed that IOI Corp Bhd could be at the risk of removal, as it failed three months of liquidity test.
“It may be booted out if it fails the liquidity test again in November 2025, and its vacancy will likely be taken up by Westports Holdings Bhd.”
Beyond the benchmark index, there appears to be very few incentives for the local equities to stage a strong rebound.
At this point, fund manager Danny Wong of Areca Capital thinks the market’s performance ahead would be driven by the third-quarter corporate results.
“From the results, I expect some better guidance or outlook for a few sectors. Thus we will buy on dip for selected sectors for 2026 prospective: tourism related, consumers, tech and semiconductor, and data centre related players,” he said.
Meanwhile, Mohd Redza did not rule out possible window-dressing activities happening in December.
One of the positive catalysts would be stronger earnings from the plantation sector as palm oil prices have been holding strong despite the increase in output.
“Plantations sector are among the few sectors besides real estate investment trusts and construction to be in the green in the second half of 2025.”
Another catalyst, according to Mohd Redza, is the resolution of the Inland Revenue Board’s dispute with Tenaga Nasional Bhd (TNB).
“Even if TNB needs to pay a portion of the disputed amount, it can lift the TNB share price. TNB has a high weightage in FBM KLCI.”
“In addition, another catalyst can come from the potential impact of lower RON95 petrol price at RM1.99 on inflation and higher domestic consumer spending.
“This will be coupled with spending boosted by higher tourist arrivals and higher spend per individual.”
In a separate note, Hong Leong Investment Bank (HLIB) Research highlighted several tailwinds enhancing FBM KLCI’s risk-reward profile, reinforcing its “constructive” medium-term stance on the stock market.
The tailwinds are fourth-quarter seasonality where stocks perform favourably, strengthening ringgit versus the US dollar and attractive valuations in 2026, alongside a solid 4.1% dividend yield.
The record-low foreign shareholding also suggests ample re-rating potential, it added.
“We maintain our end-2025 FBM KLCI target of 1,660 points.”
Despite these catalysts, the market is not without risks.
One of them can emerge in the form of escalating tantrum by US president Donald Trump, resulting in higher tariffs to trading nations like Malaysia, said Mohd Redza.
He also added that US tariffs on semiconductor products will affect product shipment and earnings, while “normalisation” efforts are ongoing.
Escalation of trade spat with China will also take a toll on market sentiment, according to Mohd Redza.
“Now we’re looking at the impact of a higher US tariff on China from Nov 1 onwards, unless both countries reach an amicable solution over China’s restriction of rare earth exports.”
Considering the volatility, HLIB Research told investors to be selective in picking stocks.
“We continue to advocate a multi-pronged approach: buy high-beta names on dips, riding on potential Federal Reserve pivot hopes.
“Anchor in resilient big-cap laggards, supported by emerging markets’ rotation flows as well as focus on catalyst-driven and domestic growth themes,” stated the research house.