The MSCI Asia Pacific Ex-Japan Index (+8.0%) skyrocketed in January to kickstart 2026, while the MSCI World Index (+2.2%) was dragged down by underperforming US equities. South Korea (+24.0%) tripled the performance of the regional index, no doubt thanks to attention shifting toward memory players in the latest phase of the AI boom. Taiwan (+10.7%) was no slouch either, as memory manufacturers depended on its cutting-edge wafers. Hong Kong’s (+6.9%) GDP grew at its fastest pace since 2021 as exports and capital investments surged, reinvigorating investor sentiment for the new year. On the flipside, Indonesia (-3.7%) experienced a drastic sell-off as MSCI paused index changes related to Indonesian stocks and warned of a downgrade to “Frontier” status if ownership transparency issues were not addressed. India (-3.1%) also fell during the month as the US slapped an additional punitive tariff of 25% on Indian exports due to its purchase of Russian oil.
Exhibit 1: Market Performance January 2026
Source: Bloomberg, PCM, 31 January 2026
On the monetary policy front, the Federal Reserve (Fed) held the federal funds rate steady at 3.50%–3.75% at its January 2026 FOMC meeting. The European Central Bank (ECB) kept its deposit rate unchanged at 2.0%, while the Bank of England maintained the Bank Rate at 3.75%. In Asia, the People’s Bank of China left its 1-year and 5-year loan prime rates unchanged at 3.0% and 3.5%, respectively. Finally, the Bank of Japan (BOJ) maintained its key short-term interest rate at 0.75%, the highest level in 30 years.
The FBMKLCI Index gained 3.6% month-on-month (m-o-m) in January, closing at 1,740.88 points. Meanwhile, the Mid 70 Index rose by 4.2%, while the Small Cap Index increased by 1.5%. Sector-wise in January, the top-performing sectors were Property, Finance, and REITs, which rose by 9.2%, 9.2%, and 5.8% m-o-m, respectively. The worst-performing sectors were Healthcare, Construction, and Energy, which declined by 2.5%, 2.2%, and 1.1% m-o-m, respectively.
After an outflow of RM22.3 billion in 2025, foreign investors returned as net buyers, with net inflows reaching approximately RM1.0 billion in January 2026. Separately, in January, there were five listings on the Ace Market (Semico Capital Bhd, SBS Nexus Bhd, Guan Huat Seng Holdings Bhd, One Gasmaster Holdings Bhd and ISF Group Bhd), and one listing on the LEAP Market (Associated Air-Pak Industries Berhad).
For the month of January, WTI crude oil rose by 13.5% m-o-m, closing at US$65.2 per barrel, while Brent crude rose by 16.1% m-o-m to US$70.7 per barrel. Crude palm oil closed at RM4,160/MT, rising 4% from the previous month, while spot gold rose 8.6%, ending the month at US$4,713.9/oz. Currency-wise, the Malaysian ringgit appreciated by 2.8% m-o-m against the greenback to RM3.9453/USD. Meanwhile, the Dollar Index fell by 1.4%, ending at 97.0 points.
Equity Market Outlook & Investment Strategy
Malaysia
After hitting a multi-year high in late January from a three-month low in late November, the KLCI’s recent slide appears to be a profit-taking pullback rather than a trend reversal. We view the pullback as temporary, supported by resilient GDP growth, undemanding valuations alongside stronger earnings growth, a firm ringgit, and renewed foreign inflows, aided by narrowing US–Malaysia rate differentials and foreign shareholding near record lows. Private consumption is expected to drive Malaysia’s economic growth in 2026, supported by a tight labour market, steady wages, strong household confidence, and growth in high value sectors like AI, data centres, and advanced manufacturing. Key supports include the SSPA Phase 2 rollout, the “Visit Malaysia 2026” campaign, and government programs such as STR and Budi Madani. Finally, the upcoming focus is on 4Q2025 earnings releases.
Regional
Equity markets are poised for moderate, selective gains in 2026, as resilient earnings help offset elevated valuations and concentrated leadership. Investors remain attentive to geopolitical risks, the payoff from sustained AI investment, and policy uncertainties, particularly in the U.S. With the Fed well into an easing cycle, liquidity conditions are supportive, while parts of Asia still have room to ease amid high real rates. A barbell strategy balancing high-quality growth with income-oriented assets remains well suited to navigating potential volatility.
Fixed Income Outlook & Strategy
Malaysia
Malaysian government bond yields are expected to remain largely range-bound in the near term, supported by resilient domestic fundamentals—including stable OPR at 2.75%, strong GDP momentum, a healthy trade surplus, and steady ringgit. Demand for medium- to long-tenor securities, particularly Shariah-compliant GII, should continue to anchor the curve. Upside pressure is likely to be limited, though yields could experience episodic volatility from global factors such as US labour market data, Fed policy signals, rising foreign yields, and geopolitical tensions. Overall, the environment remains constructive for domestic bond investors, with stable policy and macro fundamentals offsetting external uncertainties.
Regional
In January 2026, UST yields remained relatively range-bound, with the 10-year around 4.17–4.24% and the 2-year at 3.49–3.61%, reflecting a balance between resilient US economic data—including steady labour markets, solid consumer spending, and core PCE inflation—and external and geopolitical uncertainties, such as US–Iran tensions, EU–US frictions, and concerns over Fed independence. FOMC commentary reinforced a “wait and see” approach, keeping immediate policy shifts off the table, while markets awaited Trump’s Fed Chair nomination and upcoming economic releases (PPI, PMI, ISM, ADP, NFP) for guidance. Overall, yields are expected to drift modestly higher, with short-end rates sensitive to policy expectations and long-end rates influenced by global term-premium pressures, though volatility may spike around key data and geopolitical developments.
In January, China’s official PMIs unexpectedly fell below the 50-mark, indicating a contraction in manufacturing and signaling continued weakness in domestic demand after December’s strong rebound. External demand, however, remained firm, supported by robust global demand for technology products. Meanwhile, South Korea’s January trade data showed a 33.9% YoY surge in exports, driven by semiconductors, although a slowdown in activity is likely in February due to the upcoming Lunar New Year holidays.
In January, Japanese Government Bond (JGB) yields rose sharply across the curve, led by the long end, as markets repriced fiscal risks and reduced expectations of continued BOJ support. The 10-year JGB yield climbed to around 2.2–2.3%, its highest level in decades, while super-long yields surged, with the 20-year rising above 3.1% and the 30-year approaching 3.6%. The sell-off was driven by concerns over potential fiscal expansion, debt sustainability, and a gradual shift away from ultra-accommodative monetary conditions, spilling over into global bond markets by lifting term premia elsewhere.
Strategy for the month
We remain neutral on global equities, mainly the US, as elevated valuations and heavy concentration in a few mega-cap technology names limit broad market upside despite still-robust earnings growth. However, we remain constructive on Asia Pacific ex-Japan equities, particularly in North Asia, supported by a weaker US dollar and a more dovish Federal Reserve. Further easing by the Fed would give Asian central banks greater flexibility to lower interest rates, which in turn could further support regional market sentiment.
In Malaysia, we are maintaining our bullish view on large-cap equities and remain neutral on small-cap equities. Sector-wise, we maintain an overweight position in the Finance and REITs sectors due to their defensive characteristics, underpinned by resilient domestic demand, strong earnings visibility, and consistent dividend yields. Furthermore, as we remain bullish on the Malaysian market, large-cap stocks are expected to outperform and attract stronger foreign fund inflows. Meanwhile, we turned bearish for Construction (muted near-term construction billings) and Energy sector ((the ongoing Petronas-Petros dispute remains unresolved).
Exhibit 2: PCM’s monthly strategy snapshot
Source: PCM, 31 January 2026
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.
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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.
