Recovery opportunities amid volatility
THE Malaysian equity market is entering the final quarter of financial year 2025 with investors bracing for volatility but also sniffing out recovery opportunities in pockets of resilience.
Against the backdrop of shifting US trade policy, foreign fund outflows and domestic recalibration, strategists are signalling that the stage is being set for a medium-term upturn – provided global liquidity improves and political stability holds.
TA Research sets the scene bluntly: “Malaysia’s short-term market outlook remains challenged by a confluence of external and domestic pressures.”
The research house notes that the FBM KLCI, having bounced from April’s low of 1,386.63 to a high of 1,603 in August, still lags last year’s closing level.
The drag has been amplified by the imposition of US reciprocal tariffs, initially set at 24% and reduced to 19% in August, which have weighed heavily on key export sectors such as electronics, furniture, and rubber.
Yet, TA Research argues that investors may be underestimating Malaysia’s resilience.
“We believe this sharp withdrawal is overdone given Malaysia’s relative macroeconomic stability,” it says.
“Inflation remains contained, Bank Negara Malaysia’s accommodative stance has supported consumer spending and liquidity, and the government’s business friendly policies and long-term plans continued to attract investments despite tariff scare.”
The research house highlights that Malaysia registered RM190.3bil of approved investments in the first half of the year (1H25), an 18.7% increase year-on-year – spread across services, manufacturing and primary sectors.
With Budget 2026 expected to deliver targeted stimulus, the research house sees technology and electrical and electronics as key beneficiaries of supply chain diversification, while tourism and services should ride on inbound travel momentum.
“Together, these factors could help narrow valuation gaps with historical average [2021 to 2024 price-to-earnings (PE) ratio of 17.2 times] and support the FBM KLCI’s trajectory towards our end-2025 target of 1,660,” TA Research says.
Its stock preferences remain anchored in three buckets – fundamentally solid blue chips, domestic plays and defensive plays.
Under fundamentally solid blue chips are CelcomDigi Bhd, CIMB Group Holdings Bhd, Hong Leong Bank Bhd (HLB), Public Bank Bhd, Tenaga Nasional Bhd (TNB) and Telekom Malaysia Bhd (TM).
Domestic plays include Binastra Corp Bhd, Gamuda Bhd, Perak Transit Bhd, Samaiden Group Bhd and Sime Darby Property Bhd.
For defensive plays, preferred stocks are CapitaLand Malaysia Trust, Duopharma Biotech Bhd, Fraser & Neave Holdings Bhd, Padini Holdings Bhd and Sports Toto Bhd.
Upbeat tone
UOB Kay Hian (UOBKH) Research strikes a more upbeat tone, lifting its benchmark forecast to 1,640 from 1,620 previously, to reflect easing US tariff headwinds.
What energises its call is the US court ruling against the tariff mechanism, which it believes could soften the “persistently ferocious foreign equity outflows”.
Expecting a steadier market performance in 2H25, UOBKH Research states: “We continue to advocate a progressively risk-on strategy, and would capitalise on an expected imminent ‘summer lull’ for western equities.”
Its thematic plays centre on renewable energy, onshoring, China beneficiaries, data centres, Iskandar 2.0, artificial intelligence and blockchain.
Hence, sectors in favour continue to be utility (particularly solar), technology, building materials, and selectively construction and property.
The research house’s top picks include Eco-Shop Marketing Bhd, HLB, KPJ Healthcare Bhd, Pekat Group Bhd, PPB Group Bhd, Press Metal Aluminium Holdings Bhd, Sunway Bhd and TNB.
Rotation play
CIMB Research, meanwhile, leans into sector rotation.
Following second-quarter results, it has upgraded its rating on the plantation sector to “overweight” from “neutral”, primarily owing to the upgrade of SD Guthrie Bhd to “buy” from “hold” on the back of its better-than-expected 1H25 earnings, stronger crude palm oil price prospects, and its joint venture with Gamuda Bhd to jointly develop solar assets that strengthens its venture into renewable energy.
The research house is advocating five themes into year-end, beginning with cash handouts.
“In 2H25, we expect consumption to be supported by the one-off RM100 Sumbangan Asas Rahmah (Sara) cash handout, which lifted total Sara and Sumbangan Tunai Rahmah allocations to RM15bil for the year.
CIMB Research sees 99 Speed Mart Retail Holdings Bhd as the most direct proxy for Sara-driven wallet share gains, alongside Aeon Co (M) Bhd, MR DIY Group (M) Bhd and Farm Fresh Bhd.
Tourism is another lever
“Visit Malaysia Year 2026 marks a major push to enhance Malaysia’s tourism industry,” CIMB Research notes, flagging Genting Bhd, Genting Malaysia Bhd, Sunway and KPJ Healthcare as likely winners.
Infrastructure, industrialisation and the New Industrial Master Plan 2030 also form a critical driver, with Gamuda, IJM Corp Bhd, TNB and Westports Holdings Bhd highlighted.
For defensive yield hunters, banking stocks fit well into this theme, CIMB Research argues, with Public Bank, HLB, RHB Bank Bhd, and Malayan Banking Bhd as key picks, while CelcomDigi, TM and Maxis Bhd also make the cut.
CIMB Research’s value screen throws up contrarian ideas such as Bumi Armada Bhd, Kossan Rubber Industries Bhd and Malaysian Resources Corp Bhd.
The research houses stresses that these are stocks trading at close to multi-year valuation troughs owing to sector headwinds or temporary earnings drags due to technical issues.
On balance, it compiles a refreshed top-picks list led by CelcomDigi, TNB, Gamuda, Public Bank, RHB Bank, SD Guthrie, Inari Amertron Bhd, Dialog Group Bhd, and 99 Speedmart on the large-cap side, and KJTS Group Bhd, Axis real estate investment trust, Farm Fresh and Mah Sing Group Bhd in the mid-cap basket.
Multipolar world
RHB Research contextualises its call within geopolitics, arguing that a new multipolar world is shifting portfolio flows.
“The United States’ compulsion to implement its China containment strategy is giving momentum to Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Indonesia, Iran and the United Arab Emirates, movement and inadvertently spurring global multi-polarity and long-term de-dollarisation trends.”
A weaker US dollar, it argues, could favour emerging markets such as Malaysia.
With fiscal measures in play and foreign direct investment momentum building, it says: “Robust domestic liquidity conditions and improved clarity on US tariffs justifies a higher target PE of 15 times to derive a higher end-2025 projection of 1,620 points (from 1,600 point).”
Meanwhile, Hong Leong Investment Bank (HLIB) Research is looking beyond lagging indicators, banking on liquidity and policy clarity to coax investors back.
“Despite muted hard data emerging, risk appetite stays firm as investors look past tepid lagging indicators and turn more forward-looking into 2026.”
It points out that the persistence of foreign selling has kept valuations compressed, but it maintains its end-2025 FBM KLCI target at 1,640.
“In our view, the eventual re-entry would provide meaningful uplift, especially with two anticipated US Federal Reserve rate cuts likely to narrow the US’ federal funds rate-Malaysia’s overnight policy rate spread (historically a tailwind for ringgit strength and foreign inflows),” it explains.
The research house outlines a multi-pronged playbook, tactically adding high-beta names on dips, while anchoring exposure in resilient large-caps, stocks with positive catalysts, and domestic growth plays.
HLIB Research’s preferred names remain unchanged, anchored by TNB, CIMB, IHH Healthcare Bhd, Sunway, 99 Speedmart, AMMB Holdings Bhd, Itmax System Bhd, Aeon, SMRT Holdings Bhd and Focus Point Holdings Bhd, while flagging IOI Properties Bhd and Dialog Group Bhd as laggards.