Goldman Sachs has upgraded Malaysia to market weight and lifts KLCI target to 1,880. In a report dated Jan 29, Goldman points out that economic growth in 2025 exceeded the government’s forecast range (4.9% vs. 4.0–4.8%) and 2026 growth appears robust at 4.5%.
Domestic demand is supported by household cash disbursements and a civil servant wage hike, and the external outlook is positive, driven by electronics demand. This helped the Malaysian ringgit perform the best (vs USD) among the Asian regional currencies in 2025 and in 2026 so far as well (+4% ytd).
Secondly, Malaysia offers exposure to the AI theme through the increasing contribution of data centres to the economy. Data centre investment doubled in 2025 to RM14.1 billion (contributing nearly 0.5pp to GDP growth) and accounted for 51% of total net FDI inflows in 2024, up from 4% just two years earlier.
Government incentives through the Digital Ecosystem Acceleration Scheme (DESAC), along with cheaper land and energy costs, are attracting investment from diverse locations including Singapore, China, and the US.
Third, positioning and flow dynamics are supportive. Active EM and Asia ex-Japan mutual fund managers are underweight, while domestic state pension funds such as the Employees Provident Fund (EPF) and Kumpulan Wang Persaraan (KWAP) have regulations requiring investment in domestic assets.
Last, the market’s valuation and growth parameters are reasonable: earnings growth is likely to be high single-digit in 2026 and 2027, while the 14.7x forward P/E is at the midpoint of the historical range. The market’s price/book vs ROE configuration is also in line with peers.
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“Taking these factors into account, we raise our KLCI target to 1,880 from 1,750, implying 7% price upside based on a target P/E of 14.6x and 10%/8% earnings growth in 2026-2027 (vs consensus 8%/7%),” Goldman says.
