Small caps surge as investors bet on AI, power and data infrastructure

KUALA LUMPUR, BURSA MALAYSIA, 31 AUGUST 2026 —

Malaysia’s Small-Cap Rally Gains Momentum as Investors Target High-Growth Sectors

The FBM ACE Index, which tracks Bursa Malaysia’s secondary market, has surged 8.7% over the past month, marking its strongest performance among local indices and reaching levels last seen in October 2025. The index is also trading above its 200-day moving average, reinforcing the strength of the upward trend.

The FBM Fledgling Index, which includes the smallest and least liquid Main Market stocks, has gained 4.1% over the same period and appears to be forming a cup-and-handle pattern, further signalling a shift toward higher-risk, higher-return opportunities.

The broader small-cap segment has outperformed mid and large-cap stocks. The FBM Small Cap Index rose 3.1% over the past month, compared with a 2% gain in the FBM Mid 70 and a flat performance in the FBM KLCI. The divergence highlights where investor interest has shifted within Malaysia’s equity market.

Technology has led sectoral gains, rising 10.5% over the past month, followed by construction at 6.3% and utilities at 6.2%. The common driver behind many of the top gainers is Malaysia’s role in the global artificial intelligence (AI) and data centre investment cycle. Semiconductor companies are reporting stronger orders, while data centre development is boosting demand for construction, power, water infrastructure, and mechanical and electrical (M&E) contractors.

Plantation stocks have also participated in the rotation. Although the sector declined 2.1% over the past month due to profit-taking, it remains up 7.7% over three months, supported by expectations of a strong El Niño weather pattern tightening palm oil supply and supporting crude palm oil prices.

Individual stock performance has been even more pronounced. Stratus Global Holdings Bhd (KL: STRATUS), a semiconductor cleanroom automation player, surged 163% on its July 21 debut, rising from an 80 sen initial public offering (IPO) price to close at RM2.11. The stock later hit near-limit-up territory on August 7 and has since climbed to RM2.87, nearly 3.6 times its IPO price.

Other semiconductor-linked names have also seen sharp gains. Mi Technovation Bhd (KL: MI), a semiconductor equipment and materials supplier, and NationGate Holdings Bhd (KL: NATGATE), which assembles high-performance servers and optical networking products, have each gained about 70% to 80% over the past two months. Smaller-cap names such as ECA Integrated Solution Bhd (KL: ECA) and VisDynamics Holdings Bhd (KL: VIS) have roughly doubled in value.

The power infrastructure trade has mirrored this strength. Kee Ming Group Bhd (KL: KEEMING), Critical Holdings Bhd (KL: CHB), HE Group Bhd (KL: HEGROUP), and Jati Tinggi Group Bhd (KL: JTGROUP) have at least doubled over the past three months as investors anticipate continued contract opportunities from grid upgrades and data centre projects.

In the plantation sector, WTK Holdings Bhd (KL: WTK), Sarawak Oil Palms Bhd (KL: SOP), and Sarawak Plantation Bhd (KL: SWKPLNT) have each gained at least 20% in less than two months.

Fund managers are divided on whether the surge signals a broader rerating of Malaysian equities or reflects a narrow chase for high-beta stocks whose valuations have outpaced earnings.

Affin Pheim Asset Management fund manager Khoo Zing Sheng sees strong fundamentals, particularly in technology. He notes that aggressive AI infrastructure spending by US tech giants such as Meta Platforms Inc, Microsoft Corp, Alphabet Inc, and Amazon.com Inc is cascading through the semiconductor supply chain, creating greater demand visibility for Malaysian outsourced semiconductor assembly and test players, equipment suppliers, and component manufacturers.

“Most Malaysian technology stocks are now guiding full order books through 2026-2027, with strong earnings expected in the next one year,” Khoo says. He believes the rally is supported by both earnings growth and a rerating of semiconductor stocks as investors reassess their long-term growth prospects.

Tradeview Capital chief investment officer Nixon Wong is similarly constructive, citing stronger macroeconomic fundamentals, improving earnings expectations, and renewed foreign interest. Malaysia’s second-quarter economic growth of around 6%, accelerating exports, and visible investment momentum in data centres, semiconductors, and construction have strengthened the case for local equities, he says.

However, KAF Investments fund manager Neoh Jia En offers a more cautious view. He argues that the market’s recovery has been driven primarily by improved risk appetite rather than earnings growth, noting that corporate earnings estimates for 2026 and 2027 have remained broadly flat. More than half of Malaysian stocks are still posting negative returns, he says, while the rally among smaller companies has been concentrated in just two industries—technology and M&E contractors.

“Unfortunately, we have yet to see evidence of a bull market, given the narrow market breadth,” Neoh says.

The rapid gains in small-cap stocks have raised questions about speculative activity. Wong acknowledges that while some companies have genuine earnings catalysts, valuations in certain cases have risen much faster than earnings estimates, leading to increasingly demanding expectations. He believes institutional investors are participating selectively, focusing on quality small and mid-caps while the more speculative end of the market remains dominated by retail investors and short-term traders.

For investors who have missed the initial rally, Wong suggests that the easy gains may have already been captured in some of the recent winners. He advises shifting focus to companies where earnings estimates are still being revised upward, valuations remain reasonable, and identifiable catalysts exist.

Khoo sees opportunities among smaller companies benefiting from the AI infrastructure boom. While many institutional investors have minimum market-cap requirements that exclude the smallest caps, some companies valued at a few hundred million ringgit are beginning to attract institutional attention. As larger companies operate at full capacity, orders are spilling over to smaller players, creating what Khoo describes as potential “hidden gems” in the supply chain.

Neoh, however, maintains that investors should be more discerning. He describes the recent small-cap recovery as a sector-specific rally rather than a broad-based resurgence. The distinction is particularly evident in semiconductors, where some smaller, low-earnings companies have delivered some of the largest gains—a pattern Neoh says signals speculative activity. Details on further market developments remain unavailable.