KUALA LUMPUR: Malaysia is showing a steady and constructive outlook for 2026, underpinned by selective structural strengths and resilient domestic fundamentals.
HSBC head of equity strategy, Asia Pacific, Herald van der Linde said the country has “a couple of really interesting stories to tell on the economic side”, particularly in areas such as data centre development and technology-related infrastructure investments.
He said while these developments provide a positive backdrop, their direct impact on listed equities remains moderate.
“There is some positive impact on the equity side, but not a large, direct effect at this stage, so overall it is moderately positive for Malaysian equities,” van der Linde said during the HSBC Asian Outlook 2026 virtual media briefing today.
From an earnings perspective, Malaysia does not currently stand out relative to several regional peers, where growth dynamics appear stronger, he said.
However, the global interest rate environment remains supportive. With rates remaining relatively high, Van der Linde said the banking sector stands to benefit, which is constructive for markets such as Singapore and, to a less extent, Malaysia.
“Given the exposure that banks have within the Malaysian market, this remains another moderately positive factor for equities,” he said.
HSBC views Malaysia as a mid-range market within its regional equity outlook, neither a clear outperformer nor one facing significant headwinds.
Van der Linde said Malaysia continues to offer defensive qualities amid an increasingly uncertain geopolitical environment.
“One of the most defensive markets we have in Asia is Malaysia,” he said, highlighting strong local participation and consistent domestic buying during market pullbacks. As a result, downside risks appear contained, while selective upside remains supported by banking sector resilience and ongoing technology and supply-chain investment.
“There is always good buying interest when the market comes under pressure, which helps limit downside and keeps the overall outlook balanced.”
Touching on the local currency, HSBC head of Asian foreign exchange (FX) research Joey Chew said attention remains firmly on the ringgit, following strong interest from market participants in Malaysia.
Addressing the outlook, she notes that the currency delivered a standout performance last year, emerging as the best-performing currency in the region. “This was driven by a combination of supportive policy measures and structural flows.”
In particular, she highlighted the government’s ongoing requirement for government-linked companies to repatriate US dollar proceeds, which has provided consistent underlying support for the ringgit. “These policies have played an important role in anchoring the currency and sustaining demand,” she said.
Looking ahead, Chew suggested that these same drivers will remain relevant over the coming year, shaping how the ringgit evolves as policy support and capital flows continue to influence market dynamics.
She said the impact of these supportive factors is already visible, adding that onshore foreign-exchange deposits have risen sharply, while Bank Negara Malaysia data shows higher FX turnover as more of these inflows are converted.
Beyond policy support, Chew said private-sector activity has also played a role, with strong foreign direct investment – particularly in data centres – adding to underlying demand.
“These trends are unlikely to reverse quickly. Government policies are not expected to change, and any stabilisation or mild recovery in commodity prices would continue to support the repatriation of export proceeds.”
However, Chew highlighted two factors that may slow momentum this year.
“The US dollar environment is different from last year, when we saw a broad and sharp decline. In addition, the implementation of the US-Malaysia trade agreement will require higher imports from, and investment into, the US, leading to some recycling of inflows.
“Overall, we remain positive on the ringgit, but gains are likely to be more gradual than last year,” said Chew.
Touching on the domestic economy, HSBC chief Asia economist and co-head of Global Investment Research Asia, Frederic Neumann, said Malaysia’s economic momentum remains firm, with fourth-quarter growth coming in at 4.9%, broadly in line with expectations and close to the 5% forecast.
He said while headwinds are building this year, the outlook remains constructive, with growth projected at around 4.5%, slightly lower than last year but still a resilient outcome by regional standards.
“This strength continues to be underpinned by sustained investment. Infrastructure spending remains robust, while foreign direct investment has continued to expand productive capacity across the economy.
“Malaysia remains highly competitive, particularly in electronics and the semiconductor supply chain. Although it does not operate at the high end of chip manufacturing like Taiwan or South Korea, it benefits meaningfully from the broader global ecosystem and rising demand for electronics linked to AI.
“As a result, foreign investment inflows are expected to remain well supported,“ he said.
Turning to the global backdrop, Neumann noted that questions have centred on the outlook for US monetary policy.
He said HSBC does not currently expect the Federal Reserve to cut interest rates this year.
“US growth is forecast at 2.3% in 2026, up slightly from 2.2%, supported by ongoing tailwinds, including tax cuts, an AI hardware investment cycle, strong equity markets, and easing mortgage rates.
“Against this backdrop, there appears to be limited macroeconomic justification for aggressive rate cuts in the near term,“ Neumann said.
