Malaysia’s economy stays resilient but market faces 4Q26 headwinds; HLIB trims KLCI target to 1,720

MALAYSIA’S economic growth is expected to remain resilient in 2026, but Hong Leong Investment Bank (HLIB) sees several speedbumps for the market heading into the fourth quarter.

HLIB maintained its 2026 GDP growth forecast at 5.3%, following stronger-than-expected growth in the first half of the year, but expects growth to moderate to 4.7% in 2027.

Inflation forecasts remain at 2.0% for 2026 and 2.1% for 2027.

The research house also expects Bank Negara Malaysia to keep the overnight policy rate unchanged at 2.75% this year before raising it by 25 basis points to 3.0% in the first half of 2027.

For the stock market, HLIB Research expects the FBM KLCI to face a softer fourth quarter before potentially recovering towards year-end.

It lowered its end-2026 KLCI target to 1,720 from 1,760 and introduced a preliminary 2027 target of 1,790.

The research house highlighted several risks, including supply chain disruptions linked to the Iran war, potentially tighter US monetary policy, the KLCI’s upcoming expansion and uncertainty surrounding the timing of the next general election.

Rising oil prices and renewed pressure on global supply chains could also increase corporate costs.

The ringgit could face some near-term weakness as the interest rate gap between the US Federal Reserve and Bank Negara widens. 

HLIB forecasts the ringgit to average RM4.10 against the US dollar in 2026 and RM4.05 in 2027, with year-end levels of RM4.05 and RM3.90 respectively.

Budget 2027, scheduled for Oct 9, is expected to focus on measures supporting household disposable income. HLIB anticipates larger Rahmah cash aid, potentially higher minimum wages and expanded support under the Progressive Wage Policy.

These measures could benefit mass-market consumer businesses, while continued tourism initiatives may support aviation, private healthcare, malls and hotels. 

Construction activity is also expected to remain supported by development expenditure of about RM80 bil.

For property, HLIB sees potential measures to encourage homeownership, including extending stamp duty exemptions, reviving the Home Ownership Campaign and expanding affordable housing programmes.

Overall, HLIB expects the market to navigate a challenging fourth quarter before a possible year-end recovery, with corporate earnings forecast to grow 8.2% in 2026 and 5.4% in 2027.—Sept 30, 2026

Main image: TRX City

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