Malaysia Equities Hit Strongest Level Since 2018 On Firmer Ringgit, Solid Local Fundamentals

By Nurunnasihah Ahmad Rashid and Abdul Hamid A Rahman

KUALA LUMPUR, Jan 27 (Bernama) -- Malaysia’s equity market surged to its strongest level since 2018 on Tuesday, as renewed investor confidence, underpinned by a firmer ringgit and shifting global capital dynamics, prompted a reassessment of the country’s risk profile, say economists.

The benchmark FTSE Bursa Malaysia KLCI rose 1.4 per cent to reach 1,760.50 at midday (on Jan 27, 2026), its highest level since mid-October 2018.

Meanwhile, at 3.31 pm today, the ringgit strengthened to 3.9515 against the US dollar, breaking below the 4.00 psychological level for the first time in more than seven years.

The local note’s strongest close previously was at 3.9480 against the greenback on May 15, 2018.

According to economists, the rally unfolded against a backdrop of broad US dollar weakness and rising Japan-related market tensions, with the US Dollar Index sliding to its lowest level since September amid speculation of possible yen intervention and higher Japanese bond yields that have raised the prospect of a gradual unwinding of yen-funded carry trades and global portfolio reallocation.

 

Ringgit’s appreciation outpaces decline in greenback

 

Sunway University economics professor Dr Yeah Kim Leng said the ringgit’s move below 4.00 against the US dollar cannot be explained solely by external dollar weakness, noting that Malaysia’s currency appreciation has outpaced the decline in the greenback.

“The dollar index has depreciated about 0.7 per cent year-to-date, while the ringgit has appreciated by around 2.2 per cent, suggesting that only about a third of the ringgit’s strength is attributable to broad US dollar weakness,” he told Bernama.

Yeah said the remainder of the currency gains reflects improving domestic fundamentals, including better-than-expected economic growth, below-trend inflation, rising foreign exchange (forex) reserves, a sturdy current account surplus, and fiscal performance broadly in line with expectations.

Against this backdrop, he said the current episode points to a gradual re-rating of Malaysia’s currency rather than a purely cyclical move, even as global foreign exchange markets remain volatile amid policy uncertainty and structural imbalances.

“The global currency trend suggests a combination of dollar weakness and ringgit-specific strength, which supports a reassessment of Malaysia’s currency fundamentals,” he added.

On the yen, Yeah noted that rising Japanese bond yields and the prospect of currency intervention could have a more pronounced impact on portfolio allocation within major developed markets, especially the United States, than on emerging economies with solid growth and macro stability.

“Global investors are likely to seek diversification in higher-yielding and fast-growing emerging markets. 

“The smaller and weaker emerging markets may face outflow pressures, but Malaysia’s robust real-sector performance and growth-oriented economic transformation agenda reduce speculative risks to the ringgit,” he added.

Concurring with Yeah, AmBank Group chief economist Firdaos Rosli said the ringgit’s close below the 4.00 psychological level was driven by a combination of internal and external factors.

“Malaysia’s stable monetary policy, solid growth in 2025 and market expectations beyond that have resulted in positive sentiment among investors.

“In addition, external factors such as broad US dollar weakness and a positive real interest rate environment favouring Malaysia have also supported the ringgit,” he said.

Firdaos said the recent movement was slightly dollar-driven tilted, with strong bond inflows seen over the past week amid a less risk-off environment, supported by Malaysia’s favourable fourth-quarter 2025 gross domestic product data.

“On yen volatility, there has been a slightly positive spillover effect, as the Japanese yen tends to have a loose correlation with Asian currencies, although this correlation is weaker compared with the Chinese yuan.

“Bank Negara Malaysia’s decision to hold the Overnight Policy Rate at 2.75 per cent reaffirms that last year’s pre-emptive cut provided sufficient insurance against external headwinds, which should bode well into 2026,” he said.

Firdaos said that confidence in the domestic economy has been boosted by solid incoming data, although exports may remain choppy in the coming months, and on fundamentals, as growth remains resilient, supported by a solid labour market, well-anchored inflation, a positive current account surplus and fiscal discipline.

“However, reversal risks remain, particularly if US Federal Reserve rate cuts are delayed due to sticky core personal consumption expenditure inflation, which could trigger a rebound in the US dollar.

“Downside risks also stem from volatile global risk sentiment, largely driven by geopolitics, as well as growing dependence on electrical and electronics trade with the United States, which poses concentration risks to ringgit movements,” he said.

 

Equities led by fundamentally driven sectors

 

The stabilisation of the ringgit has also underpinned a strong re-rating in domestic equities, with Bursa Malaysia recording sustained gains led by fundamentally driven sectors rather than short-term liquidity flows.

IPPFA Sdn Bhd director of investment strategy and country economist Mohd Sedek Jantan said the current equity rally reflects a compression of risk premia driven by improving macro confidence, marking a shift away from speculative or flow-driven market behaviour.

“This is a re-rating environment shaped by lower risk premia and improving macro credibility rather than short-term liquidity,” he told Bernama.

‘Mohd Sedek said banking and financial stocks have emerged as the primary beneficiaries of this recalibration, as a stabilising ringgit reduces macro and funding uncertainty, improves asset-quality visibility and supports sustainable credit growth without pressuring margins.

“Historically, Malaysian banks trade at a valuation discount during periods of currency and policy uncertainty. As sovereign and forex risks are reassessed, the sector tends to benefit disproportionately through multiple expansion rather than earnings growth alone,” he said.

According to him, selective domestic consumption-related stocks are also gaining traction, supported by anchored inflation expectations and more stable real income dynamics, which enhance earnings durability rather than fuelling cyclical spikes.

Yield-oriented sectors such as utilities and real estate investment trusts are benefitting from macro stability, although their upside remains largely confined to valuation normalisation, while defensive sectors lag in a re-rating phase as investors gravitate towards growth and macro-optionality, he added.

Mohd Sedek said the current sectoral leadership suggests that Bursa Malaysia’s gains are being driven by a reassessment of medium-term fundamentals rather than a defensive response to global uncertainty.

-- BERNAMA