Market Review (July 2026)
The MSCI Asia Pacific Ex-Japan Index (-2.5%) underperformed the MSCI World Index (+0.5%) as profit-taking emerged following weaker-than-anticipated earnings across technology-centric regions. Renewed optimism surrounding China’s AI ecosystem, coupled with bargain hunting in technology stocks, staged a rebound in Hong Kong (+13.1%). Indonesia (+10.5%) recovered on renewed foreign inflows as investors priced in stronger growth prospects, supported by government-led fiscal initiatives and undemanding equity valuations. Singapore (+8.9%) gained following resilient manufacturing activity and strong external trade performance, supported by continued strength in electronics exports and improving investor sentiment. Conversely, South Korea (-22.2%) registered the steepest decline as memory heavyweights faced significant selling pressure following SK Hynix’s weaker-than-expected earnings. China (-7.9%) declined as persistent property sector weakness weighed on sentiment, with concerns over the pace of housing recovery and policy effectiveness. Taiwan (-6.5%) retreated as investors took profit on AI-related semiconductor names.
On the monetary policy front, Bank Indonesia left its benchmark BI-Rate unchanged at 5.75% at its 21–22 July 2026 policy meeting, while reiterating its commitment to supporting rupiah stability and keeping inflation within the target range.
The MSCI World Index gained (0.5%) during the month, as gains across Europe outweighed weakness across other Developed Markets. Within Developed Markets, Europe (+1.2%) led market gains, supported by resilient corporate earnings, improving investor sentiment, and easing concerns over geopolitical tensions and energy prices toward the end of the month. However, persistent inflationary pressures and expectations of tighter monetary policy continued to temper market optimism. The US (-0.1%) declined during the month, as gains in large-cap technology stocks driven by continued
optimism surrounding AI-related earnings growth were insufficient to offset broader market weakness amid elevated valuations and expectations that interest rates would remain higher for longer. Japan (-8.1%) recorded the weakest performance during the month, as concerns over yen weakness, geopolitical tensions, and broader macroeconomic uncertainty weighed on investor sentiment, despite continued progress in corporate governance reforms and resilient performance among AI-related semiconductor companies.
On the monetary policy front, the Federal Reserve kept the federal funds rate unchanged within the 3.50%–3.75% target range at its July policy meeting. The European Central Bank (ECB) also left its deposit facility rate unchanged at 2.25% at its 23 July policy meeting. The Bank of Japan maintained its key short-term policy rate at 0.75% at its July monetary policy meeting. Meanwhile, core PCE inflation, the Federal Reserve’s preferred inflation measure, eased to 3.3% yoy in June from 3.4% in May. At the same time, the U.S. unemployment rate held steady at 4.2% in June, unchanged from May.
The FBMKLCI Index rose by 3.7% month-on-month (m-o-m) in July, closing at 1,724.90 points. Meanwhile, the FBM Hijrah Shariah Index increased by 3.4% in July, the Mid 70 Index advanced by 1.2%, while the Small Cap Index climbed by 2.0%. Sector-wise in July, the top-performing sectors were Plantation, Industrial Production, and Finance, which rose by 4.9%, 4.5%, and 3.7% m-o-m, respectively. The worst-performing sectors were REITs, which edged up by 0.43%, while Utilities and Property declined by 1.86% and 1.37%, respectively.
Within the KLCI, the top three gainers for July were Petronas Chemicals Group Bhd (+18.0%), CelcomDigi Bhd (+11.6%), and SD Guthrie Bhd (+10.2%). Meanwhile, the top three decliners were YTL Corp Bhd (-6.3%), Axiata Group Bhd (-5.7%), and IOI Properties Group Bhd (-3.8%).
Foreign investors were net buyer, with a net inflow of RM299 million, bringing the year-to-date (YTD) outflows to RM2.5 billion. Separately, in July, there was one listing on the Main Market (Stratus Global Holdings Bhd), five listings on ACE Market (Eckem Holdings Bhd, RNG Tech Bhd, SRKK AI Bhd, Enest Group Bhd, United Asiapac Energy Bhd), and one listing on Leap Market (ESYS Holdings Bhd).
For the month of July, WTI crude oil rose by 21.8% m-o-m to US$84.7 per barrel, while Brent crude oil increased by 24.0% m-o-m to US$90.0 per barrel. Crude palm oil edged higher to RM4,531/MT, up 1.30% from the previous month, while spot gold advanced by 0.3% to US$4,049/oz. Currency-wise, the Malaysian ringgit remained stable, with no change m-o-m against the greenback at RM4.086/USD. Meanwhile, the Dollar Index declined by 1.26% to 99.9 points.
Equity Market Outlook & Investment Strategy Malaysia
Malaysia’s macro backdrop in July remained relatively resilient despite a more politically active environment, with investors closely monitoring the Johor state election and the subsequent Negeri Sembilan election as potential indicators of the political landscape heading into GE16. The decisive outcome in Johor and the heightened focus on Negeri Sembilan reinforced expectations that political developments will remain a key theme for domestic markets, although overall market reaction has remained orderly amid continued confidence in institutional stability and policy continuity. At the macro level, inflation remains contained, domestic demand continues to be supported by a healthy labour market, and government-led investment initiatives provide a supportive backdrop for growth. We remain constructive on selected domestic-oriented sectors, particularly beneficiaries of rising electricity demand driven by data centre expansion, ongoing renewable energy investments, and infrastructure-related spending, especially within the Johor growth corridor. We also see increasing opportunities in the construction, utilities and industrial sectors as Malaysia continues to attract foreign direct investment, supported by supply chain diversification trends and the acceleration of digital infrastructure projects. Accordingly, our strategy continues to favour a barbell approach anchored on large-cap, high-quality companies with strong balance sheets and reliable dividend yields, while selectively complemented by exposure to firms with clear earnings growth potential driven by structural thematic drivers.
Regional
Global markets faced a more challenging environment in July as tensions between the United States and Iran re-escalated, leading to renewed disruptions across key energy shipping routes. The collapse of earlier ceasefire efforts, combined with restrictions on maritime traffic through the Strait of Hormuz and broader regional supply chain disruptions, contributed to heightened volatility in energy markets and renewed concerns over global trade flows. Despite these developments, markets remained supported by expectations that major economies would continue to deploy policy tools and strategic reserves to cushion the impact of potential energy supply shocks. At the same time, investors have become increasingly focused on signs of moderation in economic momentum across both the United States and China.
Against this backdrop, investment opportunities are increasingly broadening beyond the technology sector. Ongoing capital expenditure in power infrastructure, grid modernisation, industrial automation, electrification and energy security continues to gain importance as governments and corporations respond to rising electricity demand, supply chain realignment and long-term resilience requirements. These structural themes are expected to remain key beneficiaries of sustained investment regardless of near-term geopolitical uncertainty. We maintain a preference for high-quality businesses with durable cash flows, strong balance sheets and clear earnings visibility amidst an increasingly uncertain geopolitical and macroeconomic backdrop.
In this environment, we believe a barbell strategy that combines growth and income exposures, alongside broader diversification, remains well positioned to navigate volatility stemming from potential energy shocks, renewed inflationary pressures, and lingering uncertainties surrounding US tariff policies.
Fixed Income Outlook & Strategy
Malaysia
Looking ahead, the Malaysian bond market is expected to remain supported by resilient economic growth, moderate inflation and stable domestic conditions. Bank Negara Malaysia (BNM) is expected to maintain the OPR at 2.75% in the near term, with policy remaining supportive of growth while monitoring inflation developments. Although stronger economic momentum may raise expectations of a potential rate adjustment over the medium term, demand for Malaysian government bonds is expected to remain resilient, supported by sound macroeconomic fundamentals and continued foreign investor participation. Nevertheless, movements in global bond yields, particularly US Treasury trends, alongside geopolitical developments and global trade uncertainties, will remain key factors influencing domestic bond market performance.
Regional
US Treasury (UST) yields moved higher during July, with the benchmark 10-year yield rising from approximately 4.48% to 4.67%, driven by resilient US economic fundamentals, heightened geopolitical tensions and renewed inflationary pressures. Early in the month, escalating US-Iran tensions and concerns over potential disruptions to oil supply through the Strait of Hormuz pushed crude oil prices higher, prompting investors to demand greater compensation for inflation risk. Meanwhile, stronger-than-expected consumer sentiment, resilient labour market conditions and continued hawkish Federal Reserve communications reinforced expectations that interest rates would remain higher for longer. Although US economic growth moderated, with 2Q2026 GDP expanding by 1.5%, while softer June payrolls and easing core PCE inflation pointed to a gradual moderation in economic activity, the Federal Reserve maintained the federal funds rate at 3.50%–3.75%, signalling that monetary policy would remain restrictive until inflation returns sustainably to target. Consequently, longer-dated Treasury yields remained elevated as investors continued to price in higher term premiums amid persistent fiscal and geopolitical uncertainties.
China’s Manufacturing PMI eased to 50.9 in July 2026 from 51.7 in June, reflecting slower growth in output and new orders. However, demand remained resilient with new orders expanding for the 14th consecutive month, supported by stronger export activity. Employment improved, while input cost pressures eased and business confidence strengthened on expectations of improved demand and capacity expansion.
The Bank of Japan (BOJ) maintained its policy rate at 1.00% after its June 25bps rate hike, as widely expected. However, the decision showed a more hawkish tilt, with one board member voting for a further increase to 1.25% due to rising inflation risks. Governor Ueda reiterated that further rate hikes remain possible, citing stronger inflation pressures from yen weakness, energy prices, and AI-driven demand, with discussions of additional tightening expected to gain traction at the September meeting.
The Bank of England (BOE) kept the Bank Rate unchanged at 3.75%, although the Monetary Policy Committee’s vote became more hawkish at 6-3, compared with 7-2 previously. The shift reflected growing concerns among policymakers that elevated energy prices could prolong inflationary pressures and delay the pace of future rate cuts.
Strategy for the month
We adopt a neutral stance on global equities, particularly the U.S., underpinned by the resilience of the U.S. economy, healthy domestic consumption, and its position as a major energy producer and net exporter. While AI valuation concerns have eased, elevated broader market valuations continue to limit upside, supporting our neutral stance. However, we remain constructive on China equities, supported by continued policy support, resilient exports and structural growth opportunities in technology, AI and advanced manufacturing. While domestic demand remains subdued and the property sector continues to weigh on the broader economy, strength in high-tech manufacturing and AI-related exports provides an important offset. Against this backdrop, we see opportunities in selected Chinese equities, particularly in sectors aligned with the country’s technology and industrial upgrading priorities.
In Malaysia, we remain overweight on large-cap equities and neutral on small-cap equities. At the sector level, we are overweight on the Industrial and Technology sectors. The Industrial sector should continue to benefit from sustained investment activity, particularly in manufacturing, electrical and electronics (E&E), machinery and advanced industrial capacity. Meanwhile, the Technology sector remains supported by strong demand for semiconductors, data centres and AI-related infrastructure, with Malaysia continuing to attract significant investment across these areas.
Meanwhile, we remain bearish on the Consumer and Property sectors. In the Consumer sector, while household spending remains resilient, rising packaging, logistics and energy costs could continue to weigh on margins and earnings, particularly for companies with limited pricing power and greater exposure to imported inputs. In the Property sector, rising residential overhang, softer transaction volumes and cautious buyer sentiment could limit developers’ pricing power and constrain earnings growth, despite a resilient broader economic backdrop.
Phillip Capital Malaysia and our offerings
We reaffirm our belief that there are still opportunities in the market, and we maintain a discerning approach in choosing high-quality stocks for our portfolio. However, it is crucial to exercise caution and carefully select investment options to ensure the best risk-adjusted returns. By taking a vigilant and discerning approach, investors can potentially reap the benefits of the current market opportunities while minimising risks.
A noteworthy avenue for investors seeking diversification in their portfolio is through PhillipCapital Malaysia. PhillipCapital Malaysia offers multiple private mandate services managed by professional fund managers. By leveraging PhillipCapital Malaysia’s private mandate services, investors can enhance their resiliency, optimise portfolio performance, and navigate the complexities of the market with confidence.
We also offer both conventional and Shariah-compliant options to cater to the needs of all investors. For Malaysia’s mandates, we like:
1. PMART/PMA Dividend Enhanced and/or PMART/PMA Dividend Enhanced ESG
Our PMART Dividend Enhanced and PMA Dividend Enhanced is an income-driven portfolio focused on high dividend-yielding equities. We apply the Dog of the Dow approach, screen and select top market cap stocks to minimise risk and ensure consistent performance. The portfolio is an equal weighting portfolio which reduces concentration risk and provides similar exposure to all clients, both initially and after rebalancing. We offer both conventional and Shariah investment options to cater to the diverse needs of our investors. Click here to learn more. We recently also introduced PMART/PMA Dividend Enhanced ESG Mandate as we remain dedicated to investing in ESG stocks given their stronger valuation and profitability.
2. PMART/PMA ESG
Phillip Capital Malaysia offers discretionary portfolio that invests in stocks with high ESG ratings from the F4GBM and F4GBMS Indices, namely PMART and PMA ESG. There are both conventional and Shariah options available. To explore the companies in which both Conventional and Shariah ESG mandates invest, you can refer to the provided link.
3. PMART/PMA Blue Chip and Opportunity
Our Blue-Chip portfolios primarily allocate our investments towards companies with large market capitalisations, while the Opportunity portfolios predominantly invest in companies with smaller market capitalisations. We also offer both conventional and Shariah-compliant options to cater to the needs of all investors.
Please click on the link to learn more or email us at cse.my@phillipcapital.com.my if you require any further information.
Disclaimer
The information contained herein does not constitute an offer, invitation, or solicitation to invest in any product or service offered by Phillip Capital Management Sdn Bhd (“PCM”). No part of this document may be reproduced or circulated without prior written consent from PCM. This is not a unit trust or collective investment scheme and is not an obligation of, deposit in, or guaranteed by PCM. All investments carry risks, including the potential loss of principal.
Performance figures presented may reflect model portfolios and may differ from actual client accounts’ performance. Variations in individual clients’ portfolios against model portfolios and between one client’s portfolio to another can arise due to multiple factors, including (but not limited to) higher relative brokerage costs for smaller portfolios, timing of capital injections or withdrawals, timing of purchases and sales, and mandate change (e.g., Shariah vs. conventional). These differences may impact overall performance.
Past performance is not necessarily indicative of future returns. The value of investments may rise or fall, and returns are not guaranteed. PCM has not considered your investment objectives, financial situation, or particular needs. You are advised to consult a licensed financial adviser before making any investment decisions.
While all reasonable care has been taken to ensure the accuracy and completeness of the information contained herein, no representation or warranty is made, and no liability is accepted for any loss arising directly or indirectly from reliance on this material. This publication has not been reviewed by the Securities Commission Malaysia.
