Ordered uncertainty in markets

GLOBAL volatility and resilient domestic growth have shaped the first half of 2026 (1H26), even as Malaysia delivered 5.4% gross domestic product growth in the first quarter (1Q26).

Equity markets have posted solid year-on-year gains, but performance has been uneven amid a lack of clear catalysts and inconsistent foreign institutional flows.

This has led to gains being concentrated in a few sectors, notably technology, property and industrials, rather than broad-based participation.

Looking ahead, markets face a period of “ordered uncertainty” driven by ongoing geopolitical tensions in the Middle East and related energy price shocks.

While supply chain fragmentation reinforces Malaysia’s position as a relatively stable industrial hub, investors will need to monitor margin pressures from inflation as well as potential shifts in US monetary policy under new Federal Reserve leadership.

BIMB Securities Research maintains a cautious yet constructive view on market valuations, keeping its FBM KLCI year-end target unchanged at 1,760 points.

The target implies a 15.3 times forward price-to-earnings (PE) ratio, which the brokerage deems justified by expectations that resilient domestic earnings will help offset global volatility and currency-related margin pressures.

Support is also expected from a recovery in key “overweight” sectors, as announced projects gradually translate into earnings and revenue recognition.

The research house says investors should focus on sectors more insulated from external trade shocks, such as banking and construction, while closely assessing the pace of actual capital expenditure realisation, particularly in areas like data centres supported by rising electricity demand.

Currency dynamics also warrant attention, with ringgit strength acting as a double-edged sword – supporting domestic importers while weighing on exporters through translation headwinds.

At the same time, Malaysia remains a potential beneficiary of ongoing industrial realignment.

BIMB Research advocates a balanced approach that combines defensive income exposure with policy-driven growth themes that can help mitigate risks from a “catalyst void” and cost-push inflation, keeping portfolios resilient amid volatile global conditions.

Sector growth

Post-1Q26 results, companies within the brokerage’s research universe recorded core earnings growth of 15.2% year-on-year (y-o-y) to RM19.6bil, driven mainly by margin expansion and tighter cost controls rather than revenue growth.

Revenue rose just 0.3% y-o-y, but fell 4.2% quarter-on-quarter (q-o-q), to RM298.3bil.

“For the FBM KLCI, using our own estimates plus consensus numbers (for index members outside our universe), we noted relatively unchanged FBM KLCI earnings per share estimates for 2026, when we last updated our FBM KLCI target on Jan 12, 2026. We thus maintain our end-2026 FBM KLCI target at 1,760 points (implied PE of 15.3 times),” BIMB Research says.

The research house remains “overweight” on the construction, healthcare, oil and gas, plantation, property, real estate investment trust and utilities sectors.

It also upgraded the banking sector to “overweight” from “neutral”, while downgrading the consumer sector to “neutral” from “overweight”.

“Banks maintain strong capital and nearly RM4.8bil in management overlays to hedge against credit risks, particularly among small and medium enterprises and low-income households.

“With US tariff concerns easing, these 2025 provision buffers can be repurposed to address potential spillover from the US–Iran conflict,” it notes.

BIMB Research says the retail sector faces a more challenging 2H26. While retail sales continue to grow at a steady 6.3% y-o-y, sequential momentum has begun to soften.

The prolonged Iran conflict has emerged as a key source of margin pressure, shifting the focus from top-line growth to cost management and pricing power.

Within the sector, the research house favours MR DIY Group (M) Bhd as a defensive value play, with a “buy” call and a target price of RM2.20. It remains cautious on other retail names amid rising cost pressures and increasingly restrained discretionary spending.

Stock selection

With Malaysia navigating external shocks and pursuing domestic reforms, BIMB Research advocates a forward-looking, balanced portfolio that can capture growth while managing volatility.

Among its top picks for 2H26 is Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE), on which it maintains a “buy” call with a TP of 94 sen. The stock was trading at 33 sen at last look.

The brokerage highlights MMHE’s significant contract wins in floating storage and offloading conversion and fabrication, which should support sustained order book replenishment.

BIMB Research also favours Pharmaniaga Bhd, citing its emergence as a high-value pharmaceutical manufacturer through its insulin localisation and vaccine capability initiatives.

The research house has a “buy” recommendation on the stock with a TP of RM2. At last look, Pharmaniaga was trading at RM1.18.

It is also positive on IHH Healthcare Bhd, maintaining a “buy” call and a TP of RM10.16. The stock was trading at RM8.79 at last look.

IHH is expected to benefit from a structural shift towards higher revenue intensity, resilient medical tourism demand and its strong regional footprint.

For data centre-related exposure, BIMB Research’s preferred picks are Gamuda Bhd and Sunway Construction Group Bhd, both rated “buy” with target prices of RM6.29 and RM8.28, respectively. At last look, Gamuda was trading at RM4.43, while Sunway Construction stood at RM7.43.

The brokerage likes Gamuda for its RM55bil-plus order book, growing exposure to data centre projects and strong earnings visibility from overseas operations.

Sunway Construction, meanwhile, is viewed as a preferred pure-play beneficiary of the data centre boom, supported by robust order book replenishment and industry-leading margins.

Also on BIMB Research’s conviction list is Tenaga Nasional Bhd (TNB), which carries a “buy” recommendation and a TP of RM16.77. The stock was trading at RM14.56 at last look.

TNB is seen as a key beneficiary of energy-transition investments, driven by rising electricity demand – partly fuelled by data centre developments – and a sizeable regulated capital expenditure pipeline.

Other stocks highlighted by BIMB Research include Mah Sing Group Bhd (“buy”, TP: RM1.85), Hibiscus Petroleum Bhd (“buy”, TP: RM2.80) and Hap Seng Plantations Holdings Bhd (“buy”, TP: RM2.70).