Kenanga Sees KLCI Earnings Growth Slowing to 3.5% in 2027 as Foreign Funds Pull Out

The mood on Bursa Malaysia has cooled fast, and one of the country's research houses has put numbers on why. In its strategy note for the final quarter of 2026, Kenanga Investment Bank warned that Malaysian corporate earnings growth could slow sharply next year, while separate Kenanga Research data shows foreign money flowing out of local bonds and shares.

Earnings growth expected to drop

As reported by The Edge Malaysia on 8 October, Kenanga now expects combined earnings growth for FBM KLCI companies to slow to 3.5% in 2027, down from 12.2% this year. It points to higher interest rates, cost pressures and softer consumer spending.

The trigger is rates. The US Federal Reserve raised interest rates in September for the first time in three years, pushing the 10-year Malaysian Government Securities yield as high as 4.18% before it eased, and yields have started climbing again. Kenanga thinks Bank Negara Malaysia could follow with a 25 basis point hike to the overnight policy rate before the end of June 2027.

"Historically, consumer sentiment and in turn stock prices become more challenged during rate hike periods." Kenanga Investment Bank, as reported by The Edge Malaysia

Foreign investors pull back

According to Kenanga Research figures reported by BusinessToday, foreign investors turned net sellers of Malaysian bonds in September, with RM1.8 billion in outflows after RM15.9 billion of inflows in August. Selling sped up at month-end, with RM5.9 billion leaving over the last four trading sessions, including RM3 billion on 30 September alone. Foreign holdings of Malaysian debt slipped to RM318.3 billion, or 13.4% of the total outstanding.

Equities saw RM1.7 billion in foreign outflows, so the overall capital market recorded RM3.5 billion in net foreign outflows for the month. Kenanga expects BNM to keep the OPR at 2.75% on 5 November before a single hike to 3.00% in the first quarter of 2027.

Sectors Kenanga flagged

• Banks: share prices are already pricing in a 6% earnings decline from rising yields.
• REITs, property and consumer discretionary: seen as most exposed if the OPR goes up.
• Automotive: could be dragged down by falling total industry volume.
• Plantations: output could contract.

Kenanga cut its year-end FBM KLCI target to 1,700 from 1,775; the index closed at 1,611 on Wednesday. It recommends a barbell strategy, pairing sectors with a margin of safety such as banking and healthcare with structural growth themes that are less tied to the near-term economy.

What this means for Malaysian readers

A possible OPR hike in 2027 matters well beyond the stock market. Floating-rate home loans, hire purchase and business overdrafts could get more expensive, so this is a good time for households and SME owners to check how much a 0.25 percentage point rise would add to monthly repayments. Businesses that depend on consumer spending may want to plan for a slower 2027. Budget 2027, tabled on Friday 9 October, will be watched closely for its fiscal deficit target, which affects bond yields and foreign appetite for Malaysian assets.

Sources: The Edge Malaysia and BusinessToday. This post is a summary written in our own words and is not investment advice.