This article first appeared in The Edge Malaysia Weekly on June 30, 2025 - July 6, 2025

THIS has been a challenging year for financial markets, mainly because of the uncertainties brought about by US President Donald Trump’s administration since he took office in January. Trump’s announcement of reciprocal tariffs in April resulted in heightened trade tensions and all eyes are now on the 90-day tariff pause, which ends on July 8.

Not helping matters are the geopolitical tensions in the Middle East, which have caused a spike in global oil prices. Although Trump said last Tuesday that Iran and Israel had agreed to a “complete and total” ceasefire, bringing an end to the “12-day war”, the world is closely monitoring the situation in the region.

Due to the lacklustre market sentiment, the local bourse saw massive foreign fund outflows, with a net outflow of RM12.21 billion year to date (YTD), as at June 20.

The FBM KLCI hit a low of 1,386.63 points on April 9. It had since rebounded to 1,528.16 points last Thursday. But the benchmark index is still down 6.95% YTD, after rising 12.6% in 2024.

Tradeview Capital Sdn Bhd CEO Ng Zhu Hann sees continued uncertainties in the second half of the year on the back of concerns about the expanded sales and service tax (SST) as well as the outcome of the trade negotiations with the US. He advocates a defensive play, particularly with high-yielding and blue-chip stocks.

“We will take a wait-and-see approach in the third quarter of this year. And it’s not necessarily the best time to buy, unless you are buying blue-chip and dividend names,” he tells The Edge.

Despite the announcement of a ceasefire in the Middle East, Ng says investors remain cautious about developments in the region. He adds that, in view of the absence of catalysts in the local market, Tradeview’s allocation to the Malaysian market has been trimmed to 75%, from 85% to 90% previously.

“We have a 25% allocation for the region, as well as Hong Kong and China markets, to position for a recovery in the next one to three years,” he says.

Despite the “tech comeback” story, Ng remains sceptical about earnings visibility in the tech space arising from the uncertainties in US policies. Similarly, he does not see much upside in the commodity sector, but advises investors to choose fundamentally robust names such as Deleum Bhd (KL:DELEUM) for its exposure to the oil and gas sector. He notes that the high crude palm oil price of about RM4,000 per tonne has yet to provide a strong catalyst for plantation players.

Areca Capital Sdn Bhd CEO Danny Wong is more positive on the outlook for the local stock market, pinning his hopes on a better second half based on the low-base effect in the first half of this year.

“Investors had already expected corporate earnings to be bad in 2Q. With a low base, I hope there will be some upside surprise. The majority of the bad news has already been priced in. Foreign holdings are at a very low level of below 20%. I think that would give a good basis to accumulate some good fundamental stocks,” he says.

“I don’t encourage investors to continue holding cash. For those who go for a longer-term horizon, they can focus more on some domestic-driven stocks in the banking and consumer sectors,” he says.

“I would expect banks to continue to perform well. Despite the interest rate cut expectation, I think it will be a minor one — by 25 basis points. Banks will be able to absorb that, so not much impact on the net interest margin. The impact will be cushioned by the better fee-based income. With infrastructure development, including data centres, it will be supportive of banking growth.”

Amid the ongoing trade negotiations with the US, Wong is of the view that the potential impact from tariffs has already been priced in. “I think the business operations of industrial players and exporters could stabilise as they would have strategised for the coming quarters.”

Minister of Investment, Trade and Industry Tengku Datuk Seri Zafrul Abdul Aziz has said there has been good progress in Malaysia’s discussions with the US Trade Representative and the US Secretary of Commerce on tariff negotiations. The intention on both sides is to finalise negotiations before the expiry of the 90-day tariff pause on July 8.

While the market’s attention will be on Budget 2026 in the last quarter of the year, Wong does not expect “big announcements”. Having said that, he notes that investors may start to take on some positions now ahead of the general election in 2027.

Among the major institutional investors in town, the Employees Provident Fund was buying more shares than selling in the period from June 16 to 25, accumulating shares in Gamuda Bhd (KL:GAMUDA), Public Bank Bhd (KL:PBBANK), YTL Corp Bhd (KL:YTL), MR D.I.Y. Group (M) Bhd (KL:MRDIY) and Tenaga Nasional Bhd (KL:TENAGA). It was seen selling shares in Bermaz Auto Bhd (KL:BAUTO).

In its recent 2H2025 outlook report, Maybank Investment Bank Research expects attention to be focused on cross-currents of external headwinds amid domestic tailwinds, which when combined should still offer upside to the equity market, although more selective. The research house remains positive on domestic-centric consumer plays as it expects policy tailwinds to keep the Malaysian economy on a growth path.

Maybank IB Research is also positive on the healthcare, real estate investment trust (REIT) and renewable energy sectors. “For 2H2025, we raise our conviction for the construction sector amid build-up in activities in the data centre space. Besides REITs, other defensive picks such as Telekom Malaysia Bhd (KL:TM) and Time dotCom Bhd (KL:TIMECOM) are among our telcos that fit the theme.”

However, it is “neutral” on banks, leveraging a softer macro outlook for the second half of this year. But it stresses that there could be upside to its forecasts should banks decide to use management overlays to buffer their credit costs.

In its 2H2025 market outlook report last week, TA Securities maintains its “cautiously optimistic” stance on the FBM KLCI. To have exposure to domestic equities and navigate the prevailing uncertainties, the research house advises investors to focus on three key themes: fundamentally solid blue-chip stocks, domestic play and defensive play.

The recommended stocks under its blue-chip theme are CelcomDigi Bhd (KL:CDB), CIMB Group Holdings Bhd (KL:CIMB), Hong Leong Bank Bhd (KL:HLBANK), Public Bank Bhd (KL:PBBANK), Tenaga Nasional Bhd (KL:TENAGA) and Telekom.

For those looking to leverage the domestic theme, TA Securities’ top picks are Binastra Corp Bhd (KL:BNASTRA), Gamuda Bhd (KL:GAMUDA), Perak Transit Bhd (KL:PTRANS), Samaiden Group Bhd (KL:SAMAIDEN) and Sime Darby Property Bhd (KL:SIMEPROP). Its preferred picks for a defensive play include CapitaLand Malaysia Trust (KL:CLMT), Duopharma Biotech Bhd (KL:DPHARMA), Fraser & Neave Holdings Bhd (KL:F&N), Padini Holdings Bhd (KL:PADINI) and Sports Toto Bhd (KL:SPTOTO).

TA Securities cautions that Trump’s reversal on higher tariffs and restrictive policies could delay interest rate cuts and lead to a drastic slowdown in the US economy. This could affect sentiment in global equity markets. In addition, it points out that escalated geopolitical tensions are a time bomb that could explode at any time.

On the home front, the research outfit notes that the market upside could be capped by the ongoing internal noise at Parti Keadilan Rakyat (PKR); a negative outcome following the Sabah state election, which must be held by Dec 6 this year; and demand destruction caused by the fuel subsidy rationalisation and broadening of the SST.

Nevertheless, it believes the impact from the expanded SST should be temporary and minor given its targeted approach, which mostly affects the wealthy, non-essential and premium goods, as well as the provision of commercial services between businesses. 

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