Equity Market Outlook – August 2026
Regional Markets
Global equity markets showed varying performances in July 2026 as we witnessed a significant shift away from high growth equities. This followed their historic run in the second quarter. In the United States, the technology heavy NASDAQ contracted by 3.20%. Investors shifted their focus from artificial intelligence demand toward actual monetization, while also worrying about elevated valuation levels and expanding industry competition. Despite the pullback in large technology stocks, underlying business fundamentals remained robust. The second quarter corporate earnings season was exceptionally strong, with 86% of reporting S&P 500 companies exceeding earnings per share estimates. The broader S&P 500 recorded a marginal decline of 0.13%. On the flip side, economically sensitive and value driven sectors showed great resilience. This propelled the Dow Jones Industrial Average to a 0.32% gain, highlighting a meaningful rotation from growth to value. European equities also held up well alongside this shift, with the SXXP Index advancing by 1.16% amidst a stabilizing fiscal outlook.
Asian markets presented a deeply polarized landscape and were heavily impacted by the global tech rotation. In Japan, the Nikkei 225 retreated by 8.14% as caution surrounding the technology sector offset broader market stability. South Korea experienced a severe market correction, with the KOSPI plunging by 22.19% amid heavy selling in crowded artificial intelligence trades. This sharp selloff wiped out approximately USD 2.18 trillion in market value as investor interest in chipmakers faded following the recent investment boom. Greater China indices displayed a similar divergence. The Hang Seng Index surged by 13.13%, benefiting from rotational flows as regional investors sought relative undervaluation. Meanwhile, mainland Chinese equities faced persistent headwinds, with the Shanghai Composite declining by 6.40% and the Shenzhen Component experiencing a sharp contraction of 14.53%.
Across broader Southeast Asia and emerging markets, performance was mixed but largely positive as capital rotated away from North Asian technology heavyweights. Indonesia's JCI index recorded a robust advance of 10.51%, while Singapore's STI Index climbed by 8.85%. The PSEI Index in the Philippines posted a solid gain of 3.30%. In contrast, Vietnam's Ho Chi Minh index underperformed and registered a decline of 7.32%.
Local Markets
In Malaysia, our equity market demonstrated resilient upward momentum across all key indices. This happened despite a noticeable contraction in market participation. The benchmark FBM KLCI advanced by 3.66%, which allowed it to significantly outperform several regional peers. Broader market indicators mirrored this positive trajectory. The FBM EMAS gained 2.96%, the FBM Emas Shariah rose by 2.54%, and the FBM Small Cap Shariah appreciated by 2.01%. Interestingly, this positive price action occurred alongside a significant moderation in trading activity, as overall volume declined by 31.28%.
This large cap outperformance really highlighted the strong institutional support in our market, anchored by growing confidence in Malaysia's ongoing structural reforms. Notably, the government's GEAR-uP initiative provided robust fundamental backing for valuations. Under this program, six core GLICs aim to increase the market capitalization of their investee companies by RM100 billion over five years. This was actively complemented by the MY Value Up Programme, which continues to encourage improved corporate governance and shareholder returns. Furthermore, the conclusion of the Johor state election on July 11 helped reduce the short-term political risk premium, allowing domestic markets to refocus on earnings and macroeconomic fundamentals.
Underpinning the domestic market's resilience, large cap heavyweights demonstrated steady fundamental strength, providing an anchor against broader regional market volatility throughout the month. Active sector rotation into financial services, technology, and plantations continues to reinforce Malaysia's stable earnings profile amidst a complex global economic environment.
This constructive positioning is further supported by the proposed expansion of the FBM KLCI from 30 to 50 constituents, a structural shift aimed at reducing concentration risk and attracting broader institutional participation into mid to large cap counters. Simultaneously, the strengthening El Niño phenomenon gained traction as a key cross sector investment theme. Forecasts of below normal rainfall and extreme heat provided fundamental support for the plantation sector through expectations of tighter crude palm oil supply and firmer forward prices, while also drawing investor attention toward potential beneficiaries such as water and beverage companies.
