Will the tech and AI rally keep going? Will Malaysia’s markets pick up speed this year? Cynthia Ng speaks with Kenny Yee, Head of Research at Rakuten Trade about the opportunities, the risks, and whether the ringgit could hit RM4 to the dollar.
00:13A new year brings a fresh set of questions for markets.
00:17What will drive returns for 2026? Where are the opportunities and risks?
00:23And does the technology and AI rally still have room to run?
00:28So these are some of the big questions for 2026.
00:31And joining us to break it down is Kenny Yee.
00:33He is the Head of Research at Rakuten Trade.
00:36Happy New Year, Kenny, and thank you so much for coming to the studio.
00:38Happy New Year, Cynthia. Nice to see you.
00:40All right, so let's just start with the mood early in 2026.
00:44We are about over two weeks into the new year.
00:48Mark is actually trying to figure out what kind of year it's going to turn out to be.
00:52In your position, how is the mood out there?
00:55I think the mood is rather steady if you ask Trump's fascical policies.
01:07But by having Kim, it's quite entertaining with his policies and his daily narratives
01:17to decide which direction he's going.
01:23He started the year with Venezuela and now Greenland.
01:29What's next?
01:31But on this part of the world, I think we are undergoing business as usual.
01:37I think we are still seeing a lot of foreign funds coming in.
01:45I mean, you can see that most of the big market like Hong Kong, China,
01:50you know, they're doing pretty well.
01:51I think for South Asia, some of us are doing pretty well at the moment.
01:56You know, like for the domestic market,
01:59I think the FBM KLCI has performed quite decent so far.
02:06You know, I think a lot of interest has been centred on the blue chips so far.
02:11Hopefully, this will cascade down to the smaller and mid-cap.
02:15You know, then we may have, hopefully, a bull run of sorts.
02:20So on that note, I want to bring this closer to home,
02:23talking about the FBM KLCI.
02:26I mean, growth stood at about, I think, 1.4%.
02:31It's muted. It's quite muted.
02:33Big caps, FBM KLCI.
02:37Large caps were quite solid.
02:39But like you pointed out, the small caps, the indices did fall behind last year.
02:44So looking at the, I would say, a bit of uneven performance, right?
02:48So what do you think really held back?
02:49Let's just go back to 2025.
02:50What held back Malaysia?
02:53Okay, I think last year's performance, you can split into two.
02:57I think the first stuff was terrible for the FBM KLCI.
03:01You know, as soon as we enter 2025,
03:04you can see the index been, you know, on a downtrend until possibly way past June.
03:11Until we see some sporadic buying in August to steady the index a bit.
03:18And then, you know, after which we saw, you know, a lot of funds, especially from the domestic institutions,
03:26supporting and popping up the index, you know.
03:30But having said that, right, the foreign funds are still selling.
03:34You know, they're still net outflow.
03:36I think last year, total net outflow,
03:40in excess of 20 over billion ringgit.
03:44Highest ever.
03:46You know, 2023 net outflow.
03:492024 net outflow.
03:50And last year, more than 20 billion outflow.
03:54You know, so hopefully this year, things would, you know, reverse a bit.
04:00Not really.
04:01Assuming 10, 20% of this outflow, right, come back to Malaysia.
04:06You know, you're talking about maybe 5 to 6 billion.
04:10We should see a decent performance for the index.
04:13What will drive this reversal of funds?
04:16Okay, good question, actually.
04:17First and foremost, ringgit strengthening, the ringgit strength.
04:21You know, this would also act as another avenue for foreign funds, you know, to make money.
04:28Okay, I think so far, the performance of ringgit has been very decent.
04:33And going forward, with what we are expecting from the US,
04:39I think the ringgit should break the foreign gate level.
04:43And hopefully, retest the 380.
04:46You know, that has been the goalpost for many.
04:50Stopping you there for a minute.
04:51When do you think that will happen?
04:52Wow, let me see.
04:54Calculate.
04:55No, sometime this year.
04:57Okay, first, second quarter, do you think?
04:58I think by the first half of this year.
05:01Okay.
05:01You know, hopefully.
05:02Because I see the first half of this year, things will still be a bit rosy with bells on.
05:09But after which, hopefully, things can sustain.
05:13If not, then we may see a bit of a volatility in the second half.
05:17Okay.
05:18Okay.
05:19So, let's talk about first half.
05:21First half better.
05:22So, you know, I think party may still continue in Hong Kong, China.
05:28I think, you know, after which, funds would possibly cascade down to this region.
05:34You know, I mean, this region still offer solid valuation.
05:39You know, I think fundamentals, okay.
05:42Apart from, okay, politics, I mean, here, okay.
05:46You talk about like Thailand, Philippines, this is a bit questionable.
05:50So, hopefully, you know, Malaysia would be on top of this investment list for the foreign funds.
06:01So, we are really quite confident, you know, of the performance for the KLCI moving forward.
06:09In fact, I think our latest target has been revised up to 1.810 for this year.
06:16All right.
06:16Okay.
06:17Can I just stay on the Ringgit for a second?
06:19Okay.
06:19All right.
06:19So, it's easy to point to a softer US dollar for the rise of the Ringgit.
06:25But if you look at the performance last year, it was a star performer, the best performing currency in Asia.
06:29So, what exactly that made the currency perform better than many of its peers?
06:34Yeah.
06:35Before we say that, you know, Ringgit has been a star performer last year.
06:39Ringgit has been a dog for so many years.
06:42You know, I think our Ringgit…
06:43About time, right?
06:44Yeah, about time.
06:45So, I mean, I was also very perplexed why, you know, Ringgit was so weak when it went to 480 at one point.
06:53You know, there's no reason.
06:54I mean, everything is doing well.
06:56But just that the so-called speculators, they love to play with the Ringgit.
07:04You know, I think, via all this, over the, what do they call it, non-depositivism, something like that, you know,
07:15that actually dictate the rate of the Ringgit then, you know, when confidence was at a low level.
07:23You know, you know, they can't do that now because everybody is looking good at Malaysia at the moment.
07:30You know, with fantastic FDIs and, you know, the confidence, you know,
07:37you see all these positive narratives of Malaysia at the moment.
07:41All right, so, definitely, and going forward with, we expect lower interest rate environment.
07:50That should also benefit the Ringgit versus the Greenback.
07:54Okay.
07:55That's why, you know, 380 would be the target.
07:59Okay.
07:59That was once unthinkable in the past 10 years, but we are looking at that becoming very much a possibility in the near future.
08:08Okay.
08:08Can I just maybe go into Bursa Malaysia for a bit, just look at sectoral, right?
08:12Right.
08:12If you look at the outperformance last year, mainly in consumer-related areas, if you, some of the big nades, you know, 99 Speedmark, FNN, of course, some of the IPO standouts, Oriental Copy, right?
08:26So, I'm just thinking that it seems like defensive positioning seems to show up very clearly sectoral level.
08:32Do you see that continuing this year?
08:34You know, what do you think investors will be responding to in terms of Bursa Malaysia?
08:37Um, I, okay, I think interest may still stick to all these consumer staples.
08:46So, because safe space or do you see that's because more earnings visibility compared to other?
08:49More earnings visibility, but the valuation is not that decent any longer, you know, I think they are trading at a rather relatively high valuation.
08:57But you ask me, you know, which sectors, you know, one should look at at the moment, I think it's still the banks.
09:04You know, that's where, you know, most of the foreign foreign managers would look at first when they come in.
09:11Because these are the most liquid sectors, after which they may look at other big sectors like the telcos, you know, and one of the dark horses would be the plantation sector.
09:25Why?
09:25You know, the plantation, I mean, I mean, at the moment, you know, there's a lack of, I mean, there's no excitement at the moment, you know.
09:32I think if you look at the CPO has been hitting around the 4,100 ringgit per ton level, you know, there's no excitement.
09:43But having said that, right, I mean, most of the planters with those efficient ones, right, they are making money at this level, you know.
09:51So they are expected to churn out decent earnings growth for this year.
09:56So they could be one of the dark horses for the planters.
10:00All right.
10:00You know.
10:00Going back to banking and telco, these are sectors which valuations are still quite on the higher end.
10:06Yeah, but these are the most liquid sectors, you know, and the foreign funds, they are willing to pay a premium for this, you know.
10:15Liquidity equals premium, you know, I mean, that's the reason why sometimes we see, you know, how come this company is so dirt cheap and no, but there's no liquidity.
10:26If you enter to the stock right, you may be stuck, you know, and there's no way out.
10:31But banks and telcos, they offer such, you know, leeway, you know, especially those within the maybe top 10, top 15 within the FBM KLCI.
10:42So blue chips will continue to drive the growth.
10:44Definitely.
10:44I think this will take the lead for the moment, you know.
10:47I would love to see there'll be more funds coming in, drive the FBM KLCI higher, liquidity, after which confidence.
10:57Will trickle down to the smaller?
10:58Yeah, trickle down to the smaller and mid-cap.
11:01That's how the early 90s bull run started.
11:06Okay.
11:06I was there, I saw it.
11:07But I'm not saying that, you know, this such bull run will occur again, but at least it will make things more exciting, you know.
11:16Now, speaking of excitement, 325 was quite exciting for capital raising.
11:2060 IPOs, Brussels, Malaysia, last year.
11:24It was the record highest in two decades.
11:27However, most investors who got in are likely sitting below their listing price.
11:32Nearly two-thirds are trading lower.
11:34Yes.
11:35What is that saying about Malaysia's capital markets?
11:39Maybe it's a bit saturated, I would say.
11:44Because 2024, I mean, it has been good for all the IPOs, you know, all the listings.
11:502025 has been a pretty mixed bag.
11:52And then they're saying that, you know, 2026 will be seeing another, maybe another 50, 60s IPOs again.
12:01Good, you know.
12:02But for me, I say that not too good.
12:07Why?
12:08Because, like for us, we are seeing a lot of retailers, right, they are getting all their money from the secondary market to the IPOs.
12:18That's why the secondary market for small and big cap, right, is drying up.
12:22The liquidity is drying up.
12:24That's why there's pretty zero action there.
12:27No action, you know.
12:29So, hopefully, you know, this IPO would maintain, you know, and not try to dry up the, suck up the liquidity from the secondary market.
12:41You know.
12:41But we have seen that, I think, over the last two years.
12:45That's why the secondary market has been in a doldrum.
12:49What do you think needs to be done to reverse that situation?
12:54So that the attention and the funds are not just predominantly concentrated with the chips?
13:00Again, this is like, you know, catch-22 thing, you know, I think if sentiment within the secondary market for the small and mid-cap space are doing well, you know, I mean, I said, forget about the IPO, let's invest in the secondary market.
13:18But it still happened that the last two years, right, I mean, the secondary market has been pretty quiet, you know.
13:25I think those with investments there probably said, okay, maybe, you know, try IPOs.
13:31Does this speak to the quality of the company's investor behavior or is it just the valuations or maybe just attractive, it's more attractive out there?
13:39I think it's more like behavior, you know.
13:40I think if you talk about valuation, it's very decent, Malaysia's valuation is very decent.
13:47In fact, despite, you know, the recent increase in the FBM-KLCI, we are still trading below our historical average.
13:56So you talk about valuation, we are nowhere near those on Wall Street, you know, Wall Street now, like next tech now, just they are trading almost double their historical average, you know.
14:09So it's all due to, I think, behavior, confidence, you know, but I think Wall Street, you can take it with a piece of salt, sometimes.
14:18Why do you say that? Let's get into that. Why do you say that?
14:21I mean, it's all due to liquidity, you know, all the money they've printed over the past few years, you know, at the height of the QE, they've printed about 9 trillion USD, you know.
14:33Then they have this qualitative tightening, maybe suck up about 2 or 3 trillion, you know, there's still a lot of trillions within the financial market, you know.
14:45But this story won't last long, you know, because, you know, US is losing its dominance in the financial system.
14:54Okay, all right.
14:55And also, with Trump's erratic behavior, the trust in US denominated assets is sliding down.
15:07Okay, this is getting interesting.
15:08So I want to get to the US markets because if you, besides liquidity, what we saw last year, maybe the past few years, is that the market story was dominated by AI technology.
15:17And we saw valuations hit record high, a bit of pullback, but still at very expensive valuations, right.
15:23So as we move into further into 2026, is that narrative still running?
15:28Are people still, do you see that rally to continue?
15:31Okay, first and foremost, I don't understand the rally.
15:35You know, AI, yeah, the tech, yeah.
15:39You talk about data centers, all those tech innovation, yes.
15:44But if the rally depends on what the company's project to invest over the, you know, in the future, right, say like 10 or 50 billion USD, where are they going to finance, how are they going to finance such huge investments and are they actually making money out of it or not?
16:05That's my question, you know.
16:07Because everybody is, you know, jumping on this AI bandwagon investments, you know, because all this company, you know, US companies, right.
16:13All Americans, they are number one in managing expectations, number one, you know.
16:20I mean, we Asian, no fight, you know.
16:24So that's why, you know, the Feds, the companies, you know, when they come up with, you know, all these future investments or something like that, right.
16:33It's all managing expectations, you know.
16:36But also that, all these traders, right, it's also very interesting that despite centred on this AI, they would rather focus on the positive first than the negative.
16:49Let's don't forget, US is still facing with a huge national debt.
16:54You know, 30 point, 38.5 trillion at the moment and nobody talk about it.
17:02You know, Wall Street is not talking about it.
17:04Nobody talk about it, you know.
17:05And Trump said, yeah, I'm going to increase my defense budget to 1.5 trillion.
17:12How are they going to finance it?
17:15You know, this is very interesting.
17:17And I also think if you look at last year, a lot of companies benefited or the economy benefited from a lot of front-loading activity and propped up, of course, by lower interest rates.
17:31What's going to happen in 2026?
17:32Well, interest rates are expected to keep steady or even lower, seeing how Trump is pushing hard on the Federal Reserve.
17:39But what about the domestic economy of the United States?
17:43Okay, my take on why Trump is so hell-bent on forcing the feds in lowering their interest rates, maybe he realized that his tariff policy is not working.
17:58You know, he said, oh man, you know, this tariff policy is actually driving prices up, which is actually true.
18:05It's happening.
18:06It's happening.
18:07That's why, you know, by lowering interest rate, the impact is more widespread and more immediate.
18:13You know, that's why he is really pushing for it.
18:18So, and then with low interest rate, right, at least the Americans, they can breathe a bit for a while before inflation, you know, hits them on the face again on higher prices, you know, because of the low interest rate.
18:35So, U.S. is really in a mega dilemma at the moment, you know, and like I mentioned this now, national debt, 38.5 trillion.
18:48How are they going to finance it?
18:51By issuing new bonds, right?
18:53If your new bonds are priced with a low yield, you think there are any takers?
18:58No way, you know, because looking at U.S. now, right, it's so uncharacteristic of, you know, the past U.S.
19:07Now, the new U.S. is...
19:08So, just going back to what you said earlier, the trust is eroding among investors and even generally towards the American system.
19:17Where are they turning their attention to then?
19:19Where are they looking at placing their money if not the bonds, if not trusting the Federal Reserve, you know, trusting?
19:27Which is an all-time high.
19:29Gold, commodities now, gold, they're talking about silver, you know, that's why I think, I mean, if what I expect, you know, to come through a bit, you know, Asian equities, you know, so that's why I think 2026 could be the rise of Asia maybe, you know, who knows.
19:50You know, at the moment, like Hong Kong market, you know, they're trading at 12, 13 times PE, which is at par to their average.
20:00But if you track historically, right, they can even surpass the 20 times PE, meaning to say, you know, Hong Kong, there's still some legs for it to climb higher in the Hang Seng Index.
20:13So would you say that the anticipated weaker performance of the U.S. will see funds moving into more into EM in Asia?
20:21Definitely.
20:21Definitely?
20:21Okay, all right.
20:22So just staying on U.S. a bit, so some argue that, you know, the impact of tariffs that you mentioned could be cushioned by Fed policy tools, interest rates, currency, supply chain shifts.
20:32But do you think that will help offset the blow or are we just, are they just delaying the pain at this point?
20:39I think, yes and no. I think delay pain, yes. Okay. And also that, I think we see that Trump imposed a tariff, then he delayed tariff.
20:51You know, the actual impact has been like postponed and postponed, you know. And if you notice, surprisingly, tariffs on China is less, how to say, harsh on China.
21:08Because China is holding the Trump card on Trump. Right. I mean, red earth, you know, I think, you know, China is, I think, control almost the entire public supply chain, you know, global.
21:24And we are seeing countries trying to cut reliance on red earth, on all the critical minerals.
21:30If you see Europe is doing that, you see Japan is doing that, U.S. is doing that.
21:34Yes. But is that going to be successful? Is that, are there alternatives to China?
21:41Talk is easy, but actually to do it right is very difficult. You know, why do you think China, you know, has been so persistent in doing all this rare earth thing, you know, despite the pollution and things like that?
21:58Because they realise that, you know, no one can live without this rare earth. You know, at the time, the West was, you know, they are all hyping up all the green things, you know, environment.
22:13That's why all the dirty work has been done by us, you know, but now, you know, look at the situation, you know, has turned against them, you know, for them to like, you know, we start to dig, to process.
22:26It's not that easy. It would take that more than 10 years, you know.
22:30Okay. But I just want to also talk about the China story, right? So China, you seem to be very positive about Asia, China, but it is facing weaker domestic demand and disinflation, right?
22:40And disinflation, right? So how much do you think of this, the control over supply chain, exports, how much do you think that could offset domestic pressures?
22:50Okay. I think China, unlike the US, they got money, laws of money, you know, I think from my last check, China has got a foreign reserves more than 3 trillion USD.
23:03You know, if they want to inject any easing policies, they can do it anytime.
23:10I think from the previous, I mean, the recent 15-fire plan, 2026 to 2030, okay, I mean, the Chinese government has already said that they are going to inject more funds into the financial market to ease the burden,
23:31to instill confidence and also to improve the domestic assumption.
23:38You know, I think last year they have done already by cutting the RRR and also interest rate.
23:43This year, I think a lot of expectations, there are high expectations that they'll do the similar, cut RRR and reduce interest rate, you know, over the next couple of months.
23:53Okay. That's why, you know, a lot of interest in China at the moment, hence, you know, strengthening RMB against the USD.
24:01Okay. All right. Kenny, in a couple of minutes that we have left, as we head into, well, as we are well into 2026 now,
24:09first quarter, where do you think are the opportunities and where do you think are the maybe overlooked risks that you might keep an eye on?
24:17For equities? For equities, yeah. I think you say that overlooked risks, right, domestically should be quite okay.
24:30I'm just worried of what, again, what will eminence from the US, especially from Trump.
24:36Are markets already have probably priced in the geopolitical risks? Because it seems like it is a new normal.
24:40It is a new normal. The geopolitical risks uncertainty seems to have been a new normal for a while.
24:43It is. Now, I think a lot of foreign managers are saying that, you know, I think Trump's words maybe cannot be trusted.
24:50I mean, he can say what he likes, you know. I mean, even the Supreme Court in the US are fighting against him, you know.
25:00So, I don't know how this world is going to get himself out from this, all this mess, you know.
25:07So, however, you know, Trump being Trump, right, I mean, anything that's, it's very difficult to guess what his next move is, you know, that's the problem.
25:23You know, that would be the outstanding risk. I think as for the opportunities, again, you talk about the equities market, I would look for the land guards line.
25:34The plantations, like you mentioned.
25:35Plantation sector, you know, the land guards.
25:36So, that's for domestic. What about outside global markets?
25:39Outside, definitely the Hong Kong market. You know, that's where the party is happening now, definitely.
25:46Okay, so they are back in business now.
25:48Oh, definitely, definitely. I think they have, again, reclaimed their number one spot in Asia as the hottest stock market in Asia.
25:58Okay, alright. Okay, well, thank you so much, Kenny, for that insight.
26:01And sounds like we have, we've got off to a very exciting start in 2026 and seems like it's more to come with Trump in the picture still for probably a possible future.
26:11Alright, thank you so much, Kenny. Hope to see you again.
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