• Global shipping risks have expanded beyond the Strait of Hormuz as disruptions increasingly threaten the Red Sea and Suez Canal.
• Weak Chinese crude demand should help cap oil price upside, reducing the likelihood of a prolonged energy shock.
• We maintain our FBM KLCI year-end target of 1,787, although heightened geopolitical tensions and domestic political developments are likely to keep market volatility elevated.
• We continue to characterise the current environment as a Kangaroo Market, where rapid swings in sentiment create opportunities for selective accumulation.
• Our top picks are Mi Technovation (BUY, TP: RM6.38), EG Industries (BUY, TP: RM2.80), MSC (BUY, TP: RM3.06), MITRA (BUY, TP: RM1.27) and ISF (BUY, TP: RM0.62).
Quick Take
The geopolitical landscape has become materially more complicated than when we published our Buy the Dip on Geopolitical Noise report in March. Rather than remaining confined to the Strait of Hormuz, supply chain risks have widened across multiple maritime chokepoints.
Following disruptions to traffic through the Strait of Hormuz, Saudi Arabia has significantly increased crude exports from its western Red Sea terminals by transporting oil across the kingdom via its East-West Pipeline. From there, much of the crude is shipped south through the Bab el-Mandeb Strait toward Asia. However, renewed Houthi attacks in the Red Sea have also made this alternative route increasingly risky, forcing some tankers to reverse course and sail north through the Suez Canal and Egypt's SUMED pipeline instead. While this preserves export flows, it creates logistical bottlenecks as very large crude carriers (VLCCs) cannot fully transit the Suez Canal, requiring cargo transfers, smaller vessels, or lengthy diversions around Africa that can add 20–30 days to delivery times and significantly increase freight and war-risk insurance costs.
As a result, global oil markets are no longer focused solely on the Strait of Hormuz. Instead, investors are increasingly monitoring whether disruptions spread across multiple shipping routes linking the Persian Gulf, Red Sea, Suez Canal and Mediterranean. Any prolonged disruption could tighten physical oil supply despite sufficient global production capacity.
China's Weak Demand Caps Oil Price Upside
Despite worsening geopolitical risks, we believe sustained oil price spikes may prove difficult to maintain. China—the world's largest crude importer—has sharply reduced oil imports in recent months. June crude imports fell to approximately 7.12 million barrels per day, more than 40% below pre-conflict levels. Importantly, the decline appears to reflect inventory drawdowns rather than a collapse in end-user demand, suggesting China is relying on previously accumulated strategic stockpiles instead of buying additional crude from the market.
This decline has effectively removed more than 4 million barrels per day of demand from the international market, partially offsetting supply disruptions in the Middle East. Consequently, while geopolitical tensions continue to create significant volatility, weaker Chinese buying should help prevent oil prices from entering an uncontrolled upward spiral unless regional supply disruptions become materially worse.
Our View - Volatility is the New Normal
We believe investors should prepare for an environment where sharp market swings become increasingly common. Unlike previous geopolitical events that centred around a single catalyst, markets today are simultaneously digesting Middle East tensions, evolving shipping disruptions, Trump's renewed tariff measures, uncertain Fed policy expectations and slowing Chinese demand. As a result, sentiment is likely to change rapidly as headlines evolve.
One day markets may rally on easing geopolitical concerns, only to reverse sharply following renewed attacks or policy announcements. We believe this "headline-driven" environment is likely to persist over the coming months.
Consequently, we continue to describe the current environment as a Kangaroo Market, characterised by frequent upward and downward swings without establishing a sustained directional trend.
Rather than attempting to trade every geopolitical headline, investors should remain selective and accumulate fundamentally strong companies during periods of excessive market weakness while maintaining sufficient liquidity to navigate elevated volatility.
Market Implications
Despite the increasingly uncertain geopolitical backdrop, we maintain our FBM KLCI year-end target of 1,787.
While geopolitical developments have become more complicated than anticipated earlier this year, we do not believe they materially alter Malaysia's underlying economic fundamentals. On the external front, the structural AI-driven technology upcycle continues to underpin demand for Malaysia's electronics and electrical (E&E) exports, which we believe should remain largely insulated from fluctuations in Brent crude prices. Domestically, investment momentum remains supported by ongoing data centre developments, while inflation is expected to stay well contained despite higher oil prices, thanks to the government's fuel subsidy mechanism that limits the pass-through of rising energy costs to consumers. As such, we believe Malaysia's economic outlook remains broadly intact.
More importantly, history suggests markets eventually adjust to geopolitical shocks once supply disruptions become better understood. The current environment is therefore likely to generate higher volatility rather than permanently lower valuations. Nevertheless, domestic politics could emerge as an additional source of uncertainty. The upcoming Negeri Sembilan state election will be an important inflection point, as a second consecutive strong showing by Barisan Nasional (BN) could strengthen expectations of an earlier-than-anticipated 16th General Election (GE16).
Accordingly, we maintain our FBM KLCI year-end target of 1,787. However, should the election outcome materially increase expectations of an early GE16 and result in political uncertainty rising beyond our current assumptions, we may reassess our year-end market outlook. Investors should therefore expect greater short-term volatility, but not necessarily a prolonged bear market.
While current market attention remains focused on the Strait of Hormuz, the Red Sea and the Suez Canal, we believe investors should not overlook the strategic importance of the Strait of Malacca. As one of the world's busiest maritime trade corridors and a critical gateway for Malaysia's external trade, any future disruption could carry far-reaching implications for regional supply chains, the domestic economy and equity market performance. We will explore this theme in greater detail in a forthcoming report assessing the potential impact of a Strait of Malacca disruption on Malaysia's economy and equity markets.
Our top picks are Mi Technovation (BUY, TP: RM6.38), EG Industries (BUY, TP: RM2.80), MSC (BUY, TP: RM3.06), MITRA (BUY, TP: RM1.27) and ISF (BUY, TP: RM0.62).
Sector Implications
The widening geopolitical conflict and elevated oil price volatility are expected to create divergent sectoral performance across Bursa Malaysia. While energy-related sectors should benefit from firmer crude prices and increased upstream activity, industries with high fuel consumption or significant transportation costs may face margin pressure. We believe investors should tilt portfolios towards beneficiaries of higher energy prices while remaining selective in sectors exposed to rising operating costs.
Disclaimer
The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report.
Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.
Apex Securities Berhad does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against Apex Securities Berhad. Apex Securities Berhad may from time to time have an interest in the company mentioned by this report. This report may not be reproduced, copied or circulated without the prior written approval of Apex Securities Berhad.
| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.075294 | 4.107937 |
| EUR | 4.657382 | 4.662187 |
| CNY | 0.603769 | 0.604398 |
| HKD | 0.519913 | 0.523572 |
| SGD | 3.158249 | 3.180595 |