Steady employment to buoy consumer sector

PETALING JAYA: The consumer sector is expected to remain resilient into the next year, supported by government assistance, steady employment and wage growth, with essential goods and value retailers likely to benefit most.

While softer consumer sentiment and rising operating costs could weigh on margins, companies serving lower and middle-income households are expected to enjoy more stable demand.

RHB Research maintained its “overweight” rating on the sector, saying its defensive qualities remained intact despite the challenges and valuations are appealing.

“With the sector valuation hovering at an undemanding 1.5 standard deviations below its five-year mean, we believe much of the downside risks have been largely priced in,” the research house said.

“Fundamentally, the sector’s defensive attributes stay intact as our base case does not assume a significant fall in sector earnings despite the downside risks from soft consumer sentiment and rising wage costs,” it added.

RHB Research maintained its top sector picks of 99 Speed Mart Retail Holdings Bhd, Nestle (M) Bhd, Eco-Shop Marketing Bhd, QL Resources Bhd and Farm Fresh Bhd.

“We prefer consumer staples names with relatively stronger demand visibility, pricing power and higher exposure to the lower-income groups,” it said.

RHB Research expects Budget 2027 measures to support earnings in 2027, particularly for essential goods retailers and value-focused chains. The higher RM16bil allocation for Sumbangan Tunai Rahmah and Sumbangan Asas Rahmah (Sara), alongside personal income tax measures, should help sustain household spending.

Although recurring assistance per household has remained largely unchanged, the greater allocation for Sara is expected to channel more spending towards eligible essential goods.

RHB Research noted that the sector’s defensive outlook was underpinned by healthy labour market conditions, with the unemployment rate at 2.9% in August, and formal sector median wages rising 3.8% year-on-year in the first quarter of 2026.

It added continued fiscal support and measures to lift disposable income could improve consumer sentiment in the coming months.

Other potential catalysts include an easing of geopolitical tensions in the Middle East, stronger feel-good sentiment ahead of the 16th general election or GE16 and a favourable rotation of market interest towards consumer stocks.