Foreign Capital Inflow of 24.8 Billion Expected, KLCI Forecast to Reach 1,800 Points Next Year

(Kuala Lumpur, 4th News) Amid factors such as global interest rate cuts and a weakening US dollar, JPMorgan believes that significant foreign capital inflows may return, improving the outlook for Southeast Asian stock markets next year. However, it maintains a "neutral" rating for the Malaysian stock market and sets the target for the KLCI at 1800 points by the end of 2026.

JPMorgan analysts noted that Malaysia is one of the ASEAN countries with the most robust macro fundamentals. Gross domestic product (GDP) is expected to grow steadily by 4.6% this year, the Overnight Policy Rate (OPR) remains stable at 2.75%, and inflation stays moderate at 1.8%, providing sufficient conditions to attract the return of foreign capital.

"Supported by a strong economy, the Malaysian stock market will enter 2026 with robust momentum. We predict that ASEAN could attract US$20 billion (approximately MYR 82.8 billion) in foreign capital inflows in 2026. If foreign inflows into Malaysia can return to the median level of the past three years, this would imply MYR 20.7 billion to MYR 24.8 billion (US$5 billion to US$6 billion) of fund repatriation into Malaysia."

The analyst also stated that the return of foreign capital could significantly boost local banking stocks and highly liquid blue-chip stocks.

Banking Stocks Significantly Benefit

"Banking stocks are the most obvious beneficiaries when foreign capital returns, supported by strong loan growth, manageable asset quality, and upward potential in capital management services."

The analyst also mentioned that artificial intelligence (AI) and data centers remain key structural investment themes. The next beneficiaries will shift towards power generation, grid infrastructure, and renewable energy infrastructure, reinforcing long-term related capital expenditures.

The analyst continues to be optimistic about the local technology hardware sector, especially companies involved in memory or AI-related equipment."

With the boost from Visit Malaysia Year 2026, consumer spending in the Malaysian market is also expected to increase. However, the positive effects have largely been priced into the share prices of consumer stocks; thus, whether there will be upside surprises in future earnings will be the key determinant for further stock price appreciation.

Nevertheless, the analyst added that external risks such as tariffs and fluctuations in the US dollar could impact the export sector. Therefore, he remains more optimistic about sectors driven by domestic demand and aligned with the government's reform direction.

In summary, the analyst has listed the following preferred stocks:

· Tenaga Nasional $TENAGA (5347.MY)$
· Gamuda $GAMUDA (5398.MY)$
· Maybank $MAYBANK (1155.MY)$
· Farm Fresh $FFB (5306.MY)$
· Frontken Corporation $FRONTKN (0128.MY)$
· IHH Healthcare $IHH (5225.MY)$
· Press Metal Aluminium Holdings $PMETAL (8869.MY)$

Best-case scenario sees 2000 points

Among them, National Energy and Finance Corporation is the top pick for AI and data center themes, Maybank is the preferred banking stock, Farm Fresh is the top consumer stock, Frontken Corporation is the preferred technology stock, and IHH Healthcare is the top healthcare stock.

The analyst maintained a 'neutral' rating on the Malaysian stock market, setting a target of 1800 points for the KLCI by the end of 2026.

Meanwhile, the analyst noted that under the best-case scenario, where foreign capital inflows accelerate, foreign direct investment (FDI) exceeds expectations, and domestic consumption outperforms forecasts, the KLCI could potentially reach as high as 2000 points by the end of next year.

However, he also stated that in the worst-case scenario, marked by inflation exceeding 3%, bottlenecks in power supply, and changes in political stability, the KLCI may fall to 1450 points.