KUALA LUMPUR: Malaysian shares are trading at valuations below their historical average, offering room for gains despite persistent foreign selling and policy uncertainties, said Hong Leong Investment Bank Bhd (HLIB).
It said the FTSE Bursa Malaysia KLCI's (FBM KLCI) 2026 valuation is below its five-year mean and along with a firmer ringgit and expectations of a US interest rate cut in September, could support the market in the near term.
"The recent reduction in US–Malaysia tariffs to 19 per cent, the rollout of the 13th Malaysia Plan and easing US–China trade tensions, underpinned by a 90-day truce, provide a constructive backdrop for the FBM KLCI," it said in a note today.
Yesterday, the FBM KLCI slipped 5.6 points to 1,581.05, snapping a seven-day winning streak totalling 59.6 points, in line with weaker regional sentiment.
HLIB said a decisive close above 1,587 points, the May 15 high, would confirm a breakout and pave the way towards the 1,600 to 1,615 resistance zone.
"While a brief pullback is possible after the 67.8-point August rally, the near-term bias remains constructive," it added.
However, the research house flagged several headwinds, including persistent foreign selling, muted corporate earnings and domestic policy risks.
Year-to-date, foreign investors have withdrawn RM14.61 billion from the local bourse, the highest annual outflow since the RM24.6 billion recorded during the 2020 pandemic. In contrast, local institutions have been net buyers of RM12.86 billion, supplemented by RM1.76 billion in retail inflows.
HLIB also highlighted a "tariff overhang" as Malaysia awaits clarification from the US on the status of its semiconductor exports following President Donald Trump's proposal for a 100 per cent levy on chips made outside the US.
Back home, it said concerns over subsidy rationalisation and a potential expansion of the sales and service tax could weigh on consumer sentiment and cloud earnings visibility.
