No retreat, just a rethink

IT was once a liquidity-led market. Now, it is increasingly an exercise in risk-management.

With the ongoing Iran conflict, and the resultant inflationary pressures, staying defensive is the dominant investment strategy recommended by several equity analysts.

Public Investment Bank (PIVB) Research, MBSB Research and RHB Research have all converged on a common market playbook – one that mixes commodity exposure, income-generating stocks and selective financials, while still favouring a disciplined buy-on-weakness approach for the FBM KLCI.

With geopolitics overtaking macro fundamentals as the key driver of valuation, sector rotation and risk appetite, portfolio construction is shaped more by inflation hedging and downside protection than aggressive growth chasing.

PIVB Research, for one, sets the tone with a clear inflation-hedge bias.

“Given the growing risk of rising inflationary pressure, investors should reassess different forms of financial shelter that preserve asset value during this period of instability,” it says.

“We expect commodity-related sectors to benefit from these dynamics due to anticipated supply constraints and higher cost of production,” it adds.

It says the oil and gas, plantation and mining sectors remain its preferred exposures, reflecting a conviction that real assets will outperform in a supply-constrained global environment.

PIVB Research’s core stock picks include Hibiscus Petroleum Bhd (target price or TP: RM3.40); Bumi Armada Bhd (TP: 55 sen); Malaysia Smelting Corp Bhd (TP: RM2.60); and Ta Ann Holdings Bhd (TP: RM6.66), which are highlighted as direct beneficiaries of elevated commodity prices and supply disruptions.

PIVB Research also advocates defensives, particularly in healthcare.

“Demand for healthcare services is less susceptible to higher cost as consumers are more willing to pay given that insurance coverage would provide some relief against medical cost inflation,” it explains.

Within this space, IHH Healthcare Bhd (TP: RM11.43) remains a preferred pick, benefiting from structural demand and medical tourism recovery trends.

Banks also feature as a medium-term inflation hedge within their framework.

While near-term monetary policy remains uncertain, PIVB Research retains CIMB Group Holdings Bhd (TP: RM9.20) and Malayan Banking Bhd (TP: RM12.80) as its top picks, noting that sustained inflation could eventually support interest rate repricing and net interest margin expansion.

Overall, PIVB Research maintains its end-2026 FBM KLCI target at 1,730 points.

Sub-average levels

MBSB Research, meanwhile, places stronger emphasis on yield, domestic resilience and defensive positioning.

“Despite our baseline expectations of still resilient macro performance along with positive earnings growth this year, we expect local equity valuations to remain at sub-average levels.”

“We believe the equity market would be beset by uncertainties due to the geopolitical conflict in the Middle East and attendant inflationary pressure,” it adds.

Nevertheless, MBSB maintains its end-2026 FBM KLCI baseline target at 1,800 points, suggesting that earnings resilience still underpins medium-term market stability.

The research house’s strategy is firmly defensive and income-orientated.

“Given the current environment of uncertainties and cloudy outlook, we are recommending investors tactically seek cover among defensive sectors in case the situation turns for the worse,” it says.

It highlights real estate investment trusts (REITs), utilities, healthcare, and consumer staples for their consistent dividends and stability in demand.

These sectors are considered resilient because their earnings tend to remain steady regardless of overall economic conditions.MBSB Research’s top picks reflect this income-driven strategy.

It favours Leong Hup International Bhd (TP: RM1.07); MR DIY Group (M) Bhd (TP: RM2.13); YTL Power International Bhd (TP: RM4.94); AMMB Holdings Bhd (TP: RM7.57); Pekat Group Bhd (TP: RM2); Ranhill Utilities Bhd (TP: RM2.29); 99 Speed Mart Retail Holdings Bhd (TP: RM4.37); Tenaga Nasional Bhd (TNB) (TP: RM16.40); Pavilion-REIT (TP: RM2); and QL Resources Bhd (TP: RM4.28).

It also includes tactical ideas such as Bumi Armada (target price: 44 sen) and Genting Plantations Bhd (TP: RM5.80) as energy-linked and plantation stocks could benefit from sustained commodity price strength.

On the macro front, MBSB Research highlights a significant shift in global interest rate expectations.

It notes that the interest rate futures market has significantly scaled back its interest rate cut expectations, with markets now pricing in zero rate cuts compared to earlier expectations of easing.

This reflects the impact of both the Middle East conflict and persistent inflationary pressures, particularly in energy markets, with Brent crude set to hover between US$100 to US$120 per barrel.

Balanced approach

RHB Research provides an equally cautious framework, maintaining its FBM KLCI end-2026 target at 1,780 points while acknowledging downside risk to 1,433 points under a severe escalation scenario.

The research house emphasises that investors should remain engaged but more selective, given that markets are pricing in a contained conflict as the base case.

“The fact remains that the current conflict occurred amid a relatively resilient global economic backdrop,” RHB Research notes, adding that Malaysia stands out in Asean as the least negatively affected economy due to its dual role as both oil exporter and importer, alongside its refining capacity that helps cushion external shocks.

However, it also warns that such sentiment could deteriorate quickly if geopolitical risks escalate further.

Equity investors, it says, have largely adopted a “buy-on-weakness strategy”, but a breakdown in ceasefire stability could trigger “investor capitulation” and a shift towards higher cash holdings and defensive positioning.

RHB Research’s portfolio strategy is built around balance and quality.

“Be selective: Balance value, growth, and yield,” it advises, stressing the importance of companies with high earnings quality, resilience to supply-side disruptions, strong cash flow visibility, and sustainable dividends.

Its preferred names include Public Bank Bhd (TP: RM5.45), TNB (TP: RM16.50), Hong Leong Bank Bhd (TP: RM25.70), Telekom Malaysia Bhd (TP: RM9.30), Nestle (TP: RM130), MR DIY (TP: RM2.20), KPJ Healthcare Bhd (TP: RM3.79), Eco Shop Marketing Bhd (TP: RM1.85), Kerjaya Prospek Group Bhd (TP: RM3.11), Binastra Corp Bhd (TP: RM2.72), CTOS Digital Bhd (TP: RM1.11) and AME-REIT (TP: RM1.95).

Essentially, even in a market clouded by geopolitical risk, disengagement is not the recommended course of action.

Instead of retreat, investors are advised to recalibrate and position for the eventual return of clarity when geopolitics finally takes a back seat to fundamentals.