Market Outlook
Local
2H 2025 Market Strategy - Steering Through A Patchy Recovery
Mon, 30-Jun-2025 07:01 am
by Research Team • Apex Research

  • 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.

Sentiment: Positive
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