• Stability could return to the fore with hopes pinned on greater clarity surrounding global trade deals, particularly between the US and its major partners, including Malaysia. While a recovery may be on the horizon, it is expected to be uneven as investors continue to assess the impact of reciprocal tariffs, which could further dampen economic growth outlook and corporate earnings growth prospects.
• The FBM KLCI may attempt defend the 1,500 level over the interim before attempting to re-test the 1,600 level once further clarity on global trade developments have surfaced. Upon a successful breakthrough, that could signal further upside, driven by several domestic leads. However, market sentiment remains cautious, with foreign fund outflows unabated along with the lacklustre trading activities may continue to weigh onto the overall recovery momentum.
• Looking ahead, we advocate investors to adopt a selective accumulation strategy, focusing on fundamentally strong, oversold equities that are less susceptible by the impact of reciprocal tariffs. With limited domestic catalysts, investor focus remains on US trade policies and Federal Reserve interest rate decisions, both of which continue to play a significant role in shaping the direction of the domestic market. Amidst ongoing global uncertainties revolving geopolitical tensions and currency volatility, we opine a domestically focused, selective investment approach is recommended, targeting sectors with minimal exposure to external risks.
• Malaysian stocks are still touted to be undervalued with FBM KLCI trading at PERs of 13.9x and 13.0x for 2025F and 2026F respectively. The PERs are still below historical five-year average of 15.1x, suggesting room for potential upside. At the same time, the FBM KLCI is trading at forward P/B of 1.49x and 1.28x for 2025F and 2026F respectively, which is below the five-year historical average of 1.50x.
• We maintain our 2025F year-end target for the FBM KLCI at 1,680. The assigned P/E multiple of 14.5x aligns with -1.0 SD of the index’s historical average of 15.1x, after factoring in uncertainties posed by US trade policies, which may weigh on corporate earnings growth prospects. Future upside potential will be driven by corporate earnings growth, primarily within banking, consumer, and construction heavyweights, which may present investment and trading opportunities from a longer-term perspective.
• Sector wise, a steady stream of data centre-related tenders and a record-high outstanding orderbook are driving earnings growth for construction sector. Meanwhile, the property sector is supported by resilience in property sales and rising optimism, particularly in 2H 2025, which underscores steady demand.
• Elsewhere, the recent correction in the technology sector has dragged valuations to a level that warrants renewed investor interest. Greater clarity on tariff developments would enhance policy certainty and help restore investor confidence in the sector.
• Malaysia’s renewable energy sector is poised for expansion with upcoming LSS5 awards and long-term targets under the National Energy Transition Roadmap. Utilities and power ancillary players may thrive from grid infrastructure upgrades and a growing push toward a low-carbon economy, backed by significant private and public sector financing commitments.
• Our top picks for 2H 2025 are CBHB, INARI, KERJAYA, LAGENDA, QES, SAMAIDEN, SLVEST, TENAGA and UUE.
Executive Summary
Malaysia’s GDP expanded in Q1 2025 albeit at a moderated pace of 4.4% yoy, compared to 4.9% in the previous quarter, driven by sustained household spending, stable expansion in investment activities and solid external demand which propelled exports growth.
On a quarter-on-quarter (qoq) seasonally adjusted basis, Malaysia’s GDP rose 0.7% qoq in Q1 2025, recovering from -0.2% qoq in Q4 2024 on the back of improvement across all but the mining and quarrying sector.
We project Malaysia’s economy to expand at a more moderate rate of 4.2% yoy in 2025, a downward revision from the earlier estimate of 4.6% yoy. This adjustment reflects the anticipated impact of a baseline scenario involving a 10% reciprocal tariff, which could dampen global trade activity, disrupt supply chains, and lead to softer consumer spending and business investment.
Reciprocal tariff from US was announced on 3 Apr 2025 at a rate between 10%-49% to all US trading partners that will take effect from 5 Apr 2025.
Escalating tariff tensions between US and rest of the world may potentially derail Malaysia’s GDP growth prospects, but being at the lower end in Most-favoured-nation (MFN) trade weighted average against the ASEAN average, this could be deemed positive for Malaysian products entering into US markets in relative to goods from other ASEAN countries that may face higher tariffs.
With recent tariff policies straighten out, we encourage investors to focus on stocks with minimal exposure to US markets. Recent market pullback offers opportunity to bargain hunt onto selected fundamentally sound beaten down stocks.
Maintain end-2025 FBM KLCI target to 1,680 based on PE multiple of 14.5x, which represents -0.5 SD of long-term forward average.
Our top picks revolve around a mix of defensive-natured players as well as companies with strong potential upsides over the foreseeable future such as CBH (BUY; TP: RM0.54), UUE (BUY; TP: RM1.14), SAMAIDEN (BUY; TP: RM1.71), SCGBHD (BUY; TP: RM1.71), CCK (BUY; TP:RM1.79), ATECH (BUY; TP:RM4.17), MFCB (BUY; TP:RM5.36), PEKAT (BUY; TP:RM1.43), FRONTKN (BUY; TP:RM4.37) and SLVEST (BUY; TP:RM2.03).
| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.183060 | 4.216312 |
| EUR | 4.958391 | 4.963526 |
| CNY | 0.586424 | 0.587025 |
| HKD | 0.533038 | 0.536820 |
| SGD | 3.293088 | 3.316333 |
