(Bloomberg) -- A rally in Malaysian stocks is set to continue amid strong support from local funds and as foreign investors return to the market. 

Analysts are projecting a 5% increase in the benchmark FBM KLCI Index over the next 12 months, according to Bloomberg-compiled data. The gauge has risen more than 10% so far this year, outperforming regional peers.  

The flurry of buying sent the local equity market value to a record high of more than 2 trillion ringgit ($421 billion), the exchange operator Bursa Malaysia Bhd. said on Tuesday.

Analysts at JPMorgan Chase & Co. see continued momentum for the nation’s shares going into the earnings season, bucking a historical tendency for pullbacks this month. In six of the past 10 years, May has proved a losing month for stocks in Malaysia.

Malaysia remains one of the best performing markets in Southeast Asia this year, “well supported by cash deployment mainly from local fund managers,” Rajiv Batra, head of Asia Pacific ex-Japan/China equity strategy at JPMorgan wrote in a note. 

“An upturn of the global capex cycle, tourism recovery, and resilient domestic demand would benefit” firms in the tech, transportation, industrials and tourism-linked sectors, he wrote.

Foreign funds have also started to buy local shares in May after being net sellers in the previous two months. For the year, they have pulled a net $262 million from the Kuala Lumpur bourse, according to Bloomberg-compiled data.

Still, some are not convinced the climb will continue. “I wouldn’t expect the rally to turn into a bull market, as the broader macro backdrop has not improved,” said Rajeeb Pramanik, a senior emerging-market strategist at BCA Research. 

The Kuala Lumpur gauge fluctuated between gains and losses on Wednesday, amid a broad selloff in Asia. 

“More clarity on the new government’s policy posture, in our view, should reduce the current extreme risk premiums applied to the market,” said Christopher Leow, chief investment officer, equities, Asia Principal Asset Management.

--With assistance from Eduard Gismatullin and Jeanny Yu.

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