PETALING JAYA: Rakuten Trade Sdn Bhd has revised its 2026 forecast for Bursa Malaysia’s benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) upwards to 1,810 points from its previous target of 1,730 points, based on a 17 times price-to-earnings ratio.
Rakuten Trade’s head of research, Kenny Yee Shen Pin, said the revision was driven by stronger corporate earnings growth, estimated at 7.1% this year, alongside improving foreign fund inflows that are supporting market sentiment.
“Earnings growth is expected to trend higher at 7.1%, mainly due to the uptick in forecasts for banks (+1.6%) and planters (+11.3%),“ he told reporters at the Rakuten first-quarter market outlook virtual media briefing today.
Looking at market valuations, Yee said, the FBM KLCI is still trading below its historical average.
“The benchmark is currently valued at about 15 to 15.5 times price-to-earnings, compared with its longer-term average of around 16.5 times. So, there’s still more room to go for the FBM KLCI.”
More broadly, he said most major equity markets across Southeast Asia are also trading below their respective historical valuation averages. “If the foreign funds wanted to have a better value proposition or better value, certainly Southeast Asia would be one of the premium destinations for them to look at.”
Looking ahead, Yee said the FBM KLCI could continue its positive momentum toward 1,900 points and 2,000 points in 2027.
“The FBM KLCI has the potential to break above 1,900, but likely not this year. If everything goes according to plan and US President Donald Trump behaves himself, next year we could see the FBM KLCI reach 1,900 or even 2,000 points.”
Rakuten expects a better showing from foreign funds in 2026 as net foreign inflows have already been recorded in recent days, including about RM300 million as of yesterday. Yee said. “This should translate into a better performance in terms of foreign fund flows into the local equity market.”
Yee said 2025 has been particularly disappointing, extending a period of heavy net foreign outflows from 2023 to 2025 that totalled nearly RM30 billion.
On foreign shareholding, he said it has remained relatively steady at around 19%, indicating that despite recent sizeable net foreign outflows, foreign ownership has largely held up, with no significant change in overall foreign shareholding of local equities.
“Moving forward, hopefully, foreign shareholding can improve to 25%-30%. That would certainly be a strong sign of confidence in the Malaysian market, and by then, market capitalisation should also improve along the way.”
Despite Wall Street continuing to chart record highs, Yee said, global funds are expected to gradually reduce exposure to US-denominated assets, with Asia remaining their main destination.
“In this context, Malaysia should be one of the premier destinations for foreign funds. For this year, China and Hong Kong are expected to be among the outperformers within global markets.”
Commenting on the ringgit’s performance, Yee said Rakuten expects the local currency to undergo recalibration, with an anticipated trading range of RM3.80 to RM4.00 against the US dollar this year. “This is supported by a slowdown in the US economy, which could lead to further interest rate cuts and selling of US dollar–denominated assets, particularly US Treasury bonds.”
He said the ringgit’s recent strengthening against the US dollar is not a coincidence, and he believes the ringgit has the potential to break below RM4.00 in the future.
“This movement is significant as it is one of the key catalysts for the equity market.”
Yee noted that RM3.80 is an attractive level, as it was the rate at which the ringgit was pegged during capital controls during the Asian Financial Crisis in the late 1990s.
“When the ringgit is extremely weak, it does not reflect the country’s economic fundamentals. That situation was largely due to currency speculators and the fact that the ringgit is not internationally traded, to the extent that it once appeared to be manipulated to nearly RM4.80.”
Now, with a more conducive business environment and the potential for foreign direct investment inflows, demand for the ringgit is expected to rise, Yee said. “Therefore, confidence is high that the ringgit can break below RM4.00 against the US dollar.”
