FBM KLCI likely to rebound in 4Q25

PETALING JAYA: Affin Hwang Investment Bank Research reaffirmed its “overweight” rating on the local stock market, expecting the FBM KLCI to rebound in the final quarter of this year (4Q25) to hit 1,650 points.

The benchmark index closed at 1,511.95 points yesterday. Year-to-date (y-t-d), the FBM KLCI has declined by almost 8%.

In a note, Affin Hwang said global trade uncertainties due to US tariffs and rising geopolitical risks have led to a y-t-d correction in the FBM KLCI, with these factors likely to cause further volatility in 3Q25.

“However, we expect the FBM KLCI to rebound in 4Q25 as trade deals are secured and geopolitical tensions stabilise, with our unchanged year-end target of 1,650.

“We prefer domestic-centric sectors and/or high dividend yield stocks with stable growth prospects, namely banking, construction, property, real estate investment trusts and utilities.

“Our top three market buys are CIMB Group Holdings Bhd, Gamuda Bhd and Tenaga Nasional Bhd,” it said.

Looking ahead, Affin Hwang believes sustained industrial and data centre expansion in Malaysia remains a key thematic driver for equity market performance.

State-driven economic growth remains a central theme, especially the Johor-Singapore Special Economic Zone.

Rising foreign direct investment interest in Johor, especially data centre and industrial projects, is expected to drive the state to sustain economic growth above the national average going forward.

“The continuation of structural reforms should ensure the government achieves its target to reduce the federal deficit to 3.8% of gross domestic product (GDP) in 2025, from 4.1% in 2024, which we believe will appease the international sovereign rating agencies to potentially upgrade Malaysia’s rating outlook this year.”

On economic prospects, Affin Hwang kept its mid-point real GDP growth forecast at 4.3% for 2025, easing from 5.1% in 2024.

This is due to Malaysia’s “relatively strong” economic fundamentals, supported by high public and private investment growth, robust private consumption growth, a stable overnight policy rate (OPR) and ample liquidity following the one percentage point cut in statutory reserve requirement on May 16.

“Despite the resignation of two ministers, the government remains stable and able to push through planned structural reforms, namely the expansion of sales and service tax on July 1.

“We expect the rationalisation of RON95 petrol subsidies and the mechanism for implementation to be announced in 3Q25,” it said.

Affin Hwang also foresees Malaysia’s inflation rate to remain low between 2% and 2.5% in 2025, allowing the central bank to keep the OPR at 3%.

On expectations that the US Federal Reserve will cut the federal funds rate (FFR) by 50 basis points this year, the research house said the narrowing interest-rate differential will likely drive foreign fund inflows into Malaysia in the second half of 2025.

“We expect slower US economic growth, FFR cuts and the weak US dollar to drive foreign fund flows into emerging markets like Malaysia for better returns.

“Foreign fund inflows are rising in Malaysia’s bond market but remain volatile in the equities market.

“As Malaysia’s economic conditions improve, we expect institutional fund inflows into the equities market, given good long-term growth prospects,” it noted.