Market Outlook
Local
Market Strategy - Opportunity in Volatility: Navigating a Geopolitics-Driven Market
Fri, 03-Apr-2026 07:42 am
by Nick Foo Mun Pang, To Zheng Hong • Apex Research

Executive Summary

Global markets have entered a more complex phase in 2026, transitioning from a policy-driven cycle to one increasingly shaped by geopolitical developments, particularly the escalation of the Iran conflict and its impact on global energy markets. The resulting surge in oil prices has reintroduced inflationary pressures, complicating the monetary policy outlook and reinforcing a “higher-for-longer” rate environment, thereby limiting near-term market direction.

In this environment, we predict 9M2026F could exhibit “Kangaroo Market” characteristics, with heightened volatility and lack of sustained trend, as investor sentiment becomes increasingly driven by geopolitical headlines, policy uncertainty, and energy price dynamics rather than fundamentals alone.

US policy under Donald Trump remains a major driver of global market risk into 9M2026, but the approach of the US midterm elections may temper aggressive geopolitical actions as domestic economic concerns and voter sentiment take priority. Markets are shifting focus from individual policy moves to whether the broader agenda gains traction before and after the elections, which will be a key turning point for policy direction.

Meanwhile, US equities have repriced meaningfully, with the S&P 500 forward P/E declining to around 19.7x, approaching levels seen during prior geopolitical shocks. Notably, the derating has been driven primarily by higher risk premiums rather than earnings downgrades, indicating that recent weakness reflects uncertainty rather than structural deterioration. Historical experience suggests geopolitical events tend to create short-lived volatility, while early stabilisation signals in gold point to moderating downside pressure. In this context, valuations are becoming more balanced, supporting a phased and selective accumulation approach rather than signalling capitulation.

On the domestic front, Malaysia remains relatively resilient, supported by stable macro fundamentals, sustained foreign investment inflows, and structural growth drivers such as the AI-driven semiconductor upcycle, data centre expansion, and energy transition initiatives. From a valuation perspective, the FBMKLCI is now trading broadly in line with fair value following the earlier re-rating cycle, with its P/E premium versus the MSCI ASEAN Index at~+0.3% (vs. historical mean of -1.1%) as at 2 April 2026. Valuations remain within the ±1standard deviation range, indicating a balanced risk-reward profile, with limited scope for further multiple expansion absent new catalysts.

In terms of strategy, we advocate a barbell approach, balancing defensive, cashflow generating names for downside protection with structural growth exposures anchored on AI and data centre themes, complemented by a tactical allocation to small caps for alpha generation. This framework allows investors to navigate volatility while maintaining exposure to long-term growth opportunities.

We offer six investment trading themes for 9M2026F: 1) Defensives as a Safety Anchor; (2)Structural Growth Anchored by AI and Data Centre Expansion; (3) Alpha picks; (4) Energy Driven CPO Upside; (5) Heatwave Alpha; and (6) World Cup Consumption Trade.


Our top picks for 9M2026 are Tenaga, ViTrox, Frontken, Mi Technovation, Aurelius Technologies, EG Industries, Seni Jaya Corporation, Southern Score Builders, Ramssol and MSC.
 

Sentiment: Positive
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Market Mover
Settlement Rates
Currency Buy Rates (RM) Sell Rates (RM)
USD 4.025232 4.057517
EUR 4.652922 4.662453
CNY 0.585439 0.586057
HKD 0.513407 0.517569
SGD 3.127135 3.152540