PETALING JAYA: Asian equity markets are expected to regain prominence in global investor portfolios in the first quarter of 2026, as funds increasingly rebalance away from US assets amid elevated valuations and ongoing geopolitical uncertainties, according to Rakuten Trade’s latest market outlook.
After several years of strong performance in US equities, global investors are recalibrating risk-return expectations at current valuation levels. Despite Wall Street trading near record highs, concerns surrounding trade tariffs, rising government debt and political risks are prompting a broader reassessment of geographic exposure, with Asia emerging as a key beneficiary where earnings growth prospects remain resilient and valuations comparatively attractive.
Rakuten Trade has raised its 2026 FBM KLCI target to 1,810 points, reflecting 7.1% expected earnings growth, supported by stronger forecasts for banking (+1.6%) and plantation (+11.3%) sectors, alongside resilient domestic fundamentals.
“The rotation towards Asia is becoming increasingly visible, particularly in Hong Kong and China,” said Rakuten Trade research head Kenny Yee. “Malaysia is well-positioned to benefit as both foreign and domestic investors prioritise markets offering earnings visibility, stability and quality fundamentals within the region.”
Malaysia recorded net foreign fund outflows of RM22.6 billion in 2025. However, foreign shareholding remained steady at about 19%, indicating continued participation by long-term investors even as short-term traders reduced exposure.
Domestic institutional investors continued to play a stabilising role in the market, while retail participation remained modest at around 18%, suggesting that market participation could improve with clearer catalysts and direction.
Rakuten Trade expects a lower global interest rate environment in 2026, supportive of businesses, equities, and emerging market currencies such as the ringgit. The Malaysian currency has strengthened against the US dollar and may approach the 4.00 level, offering an additional tailwind for local equities.
Banks, consumer, construction, and power and utilities sectors are rated “overweight”, supported by strong fundamentals, dividend stability, infrastructure-related growth, and rising data centre demand.
Plantation, oil and gas, glove, property, REIT, telecommunication and technology sectors are maintained at “neutral”, with selective opportunities driven by valuation considerations and operational improvements.
Market volatility is expected to remain elevated, driven by global developments, particularly in the US. However, supportive policy conditions, strong domestic fundamentals, and attractive valuations in Asia provide a constructive backdrop for Malaysia and the region in Q1 2026.
“As global investors rebalance portfolios, Asia is increasingly becoming a core component of long-term asset allocation,” said Yee. “Selective exposure to regional equities offers investors a combination of growth opportunities and defensive qualities amid an uncertain global backdrop,” Rakuten Trade said.
