KUALA LUMPUR: The domestic equity market is expected to remain rangebound amid geopolitical and macroeconomic uncertainties, with investors advised to adopt a defensive approach and accumulate stocks during periods of weakness, even as the prepares for its expansion from 30 to 50 constituents.
RHB Research said the market continued to face headwinds that could limit further gains, while the absence of immediate catalysts for a valuation re-rating was likely to keep sentiment subdued.
“Domestic equity markets will continue to be influenced by the geopolitical and macroeconomic overhang that could significantly worsen prospects for risk assets. The fallout from the ongoing US mid-term elections may also be a source of volatility,” it said in its Malaysia Strategy report dated Nov 4.
The research house said investors should remain selective, taking advantage of market weakness to accumulate shares while being prepared to lock in gains when opportunities arise.
“We still advocate a defensive posture, given the variety of headwinds capping the fundamental upside for equity markets and lack of immediate re-rating catalysts,” it said.
“Until the overriding macroeconomic environment changes, we expect markets to remain rangebound.”
The cautious outlook was reflected in trading on Wednesday, when Bursa Malaysia opened lower as investors positioned themselves ahead of Bank Negara Malaysia's (BNM) overnight policy rate (OPR) decision on Thursday and monitored developments surrounding the US midterm elections.
At 9.36am, the had fallen 2.7 points to 1,619.15, weighed down by losses in heavyweight stocks HLBANK and NESTLE.
Hong Leong Bank slipped 16 sen to RM21.18, while Nestle declined RM1.76 to RM94.12.
Market expectations were largely for BNM to maintain the OPR at 2.75%, with investors also watching the third-quarter 2026 corporate earnings season for further clues on the domestic market's direction.
Apex Securities said the local market was likely to remain in consolidation mode, with the benchmark index expected to trade within the 1,600 to 1,630 range.
It said external uncertainties, including concerns over artificial intelligence valuations and geopolitical developments, could keep volatility elevated, although improving domestic manufacturing activity might offer some support.
Investors are also assessing the potential impact of Bursa Malaysia's phased expansion of the , which will begin with the December 2026 semi-annual review.
The first phase will increase the benchmark's constituents from 30 to 50, while the FBM 70 will be reduced to 50 stocks and renamed the FTSE Bursa Malaysia Mid Cap Index (FBM MCAP). The FBM 100 will retain its existing 100 constituents.
The second phase is scheduled for the June 2027 review. The revised constituents of the and FBM Mid Cap Index will take effect on Dec 21, 2026, based on companies' market capitalisation rankings as at the close of business on Nov 23.
RHB Research said FTSE and Bursa Malaysia had also revised the rules for adding and removing index constituents. Under the new criteria, eligible stocks ranked 40th or higher by full market value will qualify for inclusion, while existing constituents ranked 61st or lower will be removed during the periodic review.
Based on its assessment, RHB Research identified 20 potential additions to the expanded benchmark. However, HLFG, KLCCP Stapled Group, BKAWAN and CHINHIN did not meet its liquidity requirements and were deemed ineligible.
The broader index is expected to have wider sector representation. Technology stocks are projected to account for 4% of the expanded benchmark, while construction's weighting is expected to increase to 3.5% from 2.6%, supported by the inclusion of IJM Corp Bhd and SUNCON.
In contrast, banking's share is projected to decline to 28.4% from 33.4%, while energy's weighting is expected to ease to 13.2% from 15.8%. Telecommunications will also see its representation fall to 8.1% from 8.9%.
RHB Research's proposed reserve list comprises ECOSHOP, F&N, UNISEM, Sunway REIT and GENM. The stocks could be considered if vacancies arise before the next semi-annual review.
Political developments, including the Sarawak and Melaka state elections scheduled for Nov 14 and speculation over the timing of the 16th General Election, are also contributing to the cautious market environment.