Malaysia's appreciation package signals renewed economic optimism, but investors should stay selective

New Straits Times

2 days ago

Commentary by Ken Low, Head of Dealing, Moomoo Malaysia
THE government's recently unveiled appreciation package offers a reaffirmation of economic stability and an acknowledgement of public resilience.
With gross domestic product (GDP) projected at 4.5 per cent for the second quarter (Q2) of 2025, a five per cent appreciation in the ringgit against the US dollar, and a record RM384 billion in approved investments last year, the speech signals renewed confidence in Malaysia's recovery trajectory.
While the headline figures are encouraging, investors should be mindful that short-term sentiment gains may eventually give way to more nuanced market dynamics, particularly as the government moves forward with long-anticipated structural reforms.
MACROECONOMIC STRENGTH AND ITS MARKET TRANSLATION
The numbers are telling: Malaysia's economy expanded 4.4 per cent in Q1 and is forecast to hit 4.5 per cent in Q2.
Simultaneously, Malaysia has climbed 11 spots to rank 23rd on the World Competitiveness Index, and recorded RM384 billion in approved investments last year - a 17 per cent year-on-year increase.
These signals reflect improving investor confidence, foreign fund inflows, and a more favourable backdrop for risk-taking, especially in domestic equities and government bonds.
The ringgit's over five per cent appreciation against the US dollar, supported by stronger fundamentals and policy clarity, also improves purchasing power and reduces imported inflation risk - factors that could influence earnings in consumer-facing sectors and improve margin expectations in the near term.
The next few months will test the government's ability to sustain growth while executing reforms. For investors, the focus should remain on companies with sound fundamentals, pricing power, and proactive cost management strategies.
SPENDING POWER AND DOMESTIC DEMAND: A SECTORAL VIEW
The appreciation package goes beyond symbolic policy - it delivers immediate, broad-based support to household incomes, with potential implications for consumer demand.
Key measures include a minimum wage increase to RM1,700, enhanced living wage provisions for government-linked company and government-linked investment company employees, and the RM100 "SARA for All" cash transfer reaching over 22 million adults.
These measures are likely to generate a short-term uplift in disposable income, supporting consumption across key categories. For equity investors, this points to potential near-term tailwinds in:
• Consumer staples and discretionary sectors (groceries, apparel, personal care)
• Telecommunications (prepaid/top-up driven segments)
• Retail and Fast-moving Consumer Goods (especially mass-market and convenience-driven brands)
• Food & Beverage (quick-service, ready-to-eat, and value-tier offerings)
However, it's critical to differentiate short-term sentiment-driven gains from structurally sustainable consumption trends.
One-off transfers, while impactful, do not guarantee prolonged demand momentum—especially amid persistent food inflation risks and looming subsidy reforms that could erode real income over time.
For investors, focus on companies with pricing power, efficient distribution, and exposure to the value-for-money segment. A selective approach is key, given the transitory nature of the stimulus and potential volatility in consumer confidence.
RON95 AND ELECTRICITY COULD CREATE DIVERGENCE ACROSS SECTORS
Of greater consequence is the upcoming restructuring of RON95 fuel subsidies, with new pricing and eligibility criteria expected to be announced by end-September.
The proposal to fix prices at RM1.99 per litre for eligible Malaysians aims to prevent RM20 billion in annual leakage, a necessary step for fiscal sustainability.
At the same time, the revised electricity tariff structure introduced in July 2025 offers relief to the majority of households, with over 85 per cent of domestic users seeing up to a 14 per cent reduction in their monthly electricity bills.
However, high-usage residential and commercial categories are expected to face steeper rates, in line with a more targeted subsidy framework.
Both changes introduce new cost variables for businesses. While lower residential energy bills may indirectly support consumption, sectors with high energy intensity - such as manufacturing, logistics, and data centres, could face margin pressures if unable to absorb or pass on higher input costs.
Investors should monitor these shifts closely, especially in companies with low operational flexibility or narrow pricing buffers.
INVESTOR OUTLOOK: STAY SELECTIVE AMID SHIFTING CURRENTS
In the short term, the Appreciation Package is likely to support domestic sentiment and encourage rotation into consumer-linked sectors.
However, as policy reforms progress, particularly around fuel subsidies and fiscal recalibration, the market may begin to reprice risk across vulnerable industries.
Investors are advised to remain selective, focusing on companies with diversified revenue streams, healthy balance sheets, and strategic agility to adapt to changing cost structures.
Defensive positioning in utilities, consumer staples, and dividend-yielding assets may also provide stability as the broader effects of the subsidy shift materialise.
While the current sentiment uplift is encouraging, sustained market momentum will depend on how effectively Malaysia navigates this next phase of policy execution.