KUALA LUMPUR (March 28) - Malaysia's stock market is expected to experience continued volatility in the near term as investors remain skittish over persistent international trade tensions, market strategists have cautioned.   

According to CGS International, this period of uncertainty could extend until June, with a potential market rebound anticipated only in the second half of the current year. The research house suggests that potential interest rate cuts by the US Federal Reserve in the latter half of 2025 could provide a much-needed boost to both the Malaysian ringgit and the Bursa Malaysia (the Malaysian stock exchange).   

Adding to this optimistic outlook, CGS International also foresees the possibility of de-escalation in global trade tensions by that time. The firm believes that the inflationary impact and ongoing legal challenges could make it less appealing for the United States to maintain current tariffs. Furthermore, concessions from its trading partners could help to prevent a full-blown trade war, thus easing market anxieties.

Despite a recent recovery from sell-offs, Malaysia's benchmark FTSE Bursa Malaysia KLCI (FBM KLCI) index is still down approximately 6% from its position at the end of 2024, primarily due to sustained capital outflows. Foreign investors have continued to be net sellers of Malaysian equities, a trend also observed in most major Southeast Asian markets.   

Meanwhile, the Malaysian ringgit has shown relative stability following a significant appreciation against the US dollar in the previous year.

"We expect the market to stage a comeback in the second half," CGS stated in its analysis. The firm also highlighted the compelling valuations of the KLCI, with its earnings multiple largely trading below its five-year average. CGS advises investors to focus on the potential of domestic consumption, driven by recent government initiatives.   

The Malaysian government has recently implemented measures such as increased cash handouts and a salary raise for civil servants, aimed at bolstering household spending and mitigating the impact of rising living costs resulting from subsidy rationalizations.

Domestic Focus Provides Underlying Strength

Maybank Investment Bank offers a slightly different perspective, suggesting that Malaysia's market continues to draw strength from domestic-centric policy drivers. The country is also experiencing an investment upcycle, with foreign direct investments beginning to materialize.   

While Maybank's initial year-end target of 1,700 for the KLCI now appears ambitious given the current market climate, the investment bank has maintained its target. This reflects their confidence in the effective implementation of government policy initiatives to propel the market higher.   

"We do believe there are opportunities to accumulate stocks for the long term," Maybank analysts noted.

In terms of investment strategy, Maybank remains positive on sectors such as banks, consumer goods, and healthcare (hospitals). The firm also sees potential in select stocks within the construction, oil and gas, aviation, real estate investment trusts (REITs), renewable energy, and technology sectors.   

Market Participants Advised to Exercise Caution

While the prospect of a second-half rebound offers some encouragement, investors are advised to remain cautious in the near term, closely monitoring global trade developments and the trajectory of US monetary policy. The successful implementation and impact of Malaysian government initiatives will also be crucial factors influencing market performance in the coming months.   

Additional Contextual Information:

Global Trade Tensions: The ongoing trade tensions primarily involve disputes between major economies like the United States and China, with tariffs and trade restrictions impacting global supply chains and investor sentiment.
US Federal Reserve Policy: The US Federal Reserve's decisions on interest rates have a significant impact on global financial markets, influencing currency valuations and investment flows. Rate cuts can often stimulate economic growth and boost asset prices.   

Malaysian Economic Outlook: Malaysia's economy is influenced by both global factors and domestic policies. Government initiatives aimed at boosting domestic consumption and attracting foreign investment play a key role in its economic performance.   

Foreign Investor Sentiment: The net outflow of foreign investment from Malaysian equities reflects concerns about global economic uncertainties and the attractiveness of other emerging markets. A return of foreign investment would be a positive sign for the Bursa Malaysia.

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