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Malaysian Reserve
a day ago
- Business
- Malaysian Reserve
In search of opportunities amid Mideast, tariff uncertainties
From a macro perspective, Maybank IB expects attention in 2H25 to be focused on cross currents of external headwinds amid domestic tailwinds THE second half of 2025 (2H25) might be more tumultuous, if not even more fluid compared to the 1H. 'Recent Middle Eastern conflicts coupled with ongoing tariff negotiations and supply chain disruption, plus domestic policy changes are expected to shift sands in 2H25,' according to Maybank Investment Bank Bhd (Maybank IB) in a strategy report. It has kept its year-end FTSE Bursa Malaysia's Kuala Lumpur Composite Index (FBM KLCI) target at 1,660 points, which is 14.4 times 2026E price earnings ratio, which is its base case and assumes further de-escalation in trade tensions and favourable tariff negotiations. In the report dated June 22 entitled: 'Shifting sands: Malaysia 2H25 Outlook & Lookouts', Maybank IB has added SD Guthrie Bhd and Westports Holdings Bhd as its tactical picks, and reaffirmed YTL Power International Bhd and Gamuda Bhd as its data centre conviction thematic plays. It has also further added Sunway Construction Group Bhd and MN Holdings Bhd as activities pick up. Its top picks were Public Bank Bhd, AMMB Holdings Bhd, Tenaga Nasional Bhd (TNB), YTL Power, Gamuda, KPJ Healthcare Bhd, Farm Fresh Bhd, Solarvest Holdings Bhd and Pavilion Real Estate Invest- ment Trust (REIT). In the technology space, the report noted that its selective picks remained Frontken Corp Bhd, ITMax System Bhd and Aurelius Technologies Bhd. From a macro perspective, Maybank IB said it expected attention in 2H25 to be focused on cross currents of external headwinds amid domestic tailwinds, which when combined, should still offer upside to the equities market albeit more selective. 'Our five themes are intact and remain well in progress. We reiterate our 'Neutral' stance on the banks, leveraging on the softer 2H25 macro outlook, but stress that there could be upside to our forecasts should banks decide to use management overlays to buffer credit costs — Public Bank and AMMB Holdings, our bank picks, are well positioned for this. 'Elsewhere, we remain positive on domestic-centric consumer plays as we expect domestic policy tailwinds to keep the Malaysian economy on a growth path,' it said. Besides the consumer sector, the report said Maybank IB remained 'Positive' on healthcare, REITs and renewable energy (RE). For 2H25, it has raised its conviction for the construction sector amid build-up in activities within the data centre space. Besides REITs, other defensive picks such as Telekom Malaysia Bhd (TM) and TIME dotCom Bhd are among telcos that fit the theme. Given current circumstances with heightened external uncertainties, it said it had flagged additional three sector thematics to explore for the rest of the year — plantations, utilities/RE and ports. Mideast Conflict The Middle Eastern conflict has triggered oil prices surge and indirectly crude palm oil (CPO) price bounce, though this could be temporary. While its expected CPO prices to end the year at RM4,000 per tonne, only a sustained level above RM4,500 per tonne could be a surprise for planters on the upside. Regardless, it said SD Guthrie would be the best proxy for the planters. Separately, as the National Energy Transition Roadmap (NETR) continues to track well, it said awards for RE, battery energy storage systems (BESS) and carbon capture, utilisation and storage (CCUS) abound. Apart from TNB, it noted that MN Holdings was well-positioned to benefit from BESS contracts. Lastly, it noted that as ports face congestions amid tariff and Middle Eastern concerns, it expected to see storage rates surge. Coupled with higher tariff rates with effect from July 1, Westports stands out as a beneficiary. 'We believe there should be a resolution to tariff issues though with a timing risk. As we write, the Malaysian government is still in negotiation with the US on reciprocal tariffs (link). 'A further risk that could arise from here is the extended Middle Eastern tensions. Softer 2H25 macro and any market weakness would offer investors an opportunity to accumulate stocks, especially the banks, which we believe stand out as long-term winners,' it said. Separately, it noted that the tech sector remained at crossroads, hence it selectively liked Farm Fresh and Greatech Technology Bhd in the semicon space and Aurelius Technologies among electronics manufacturing services (EMS) plays. Fiscal Reforms The 92-page report also discussed the fiscal focus in 2H25. Here, it pointed out that the focus was on the rollout of fiscal reforms and tax measures outlined in Budget 2025, namely RON95 petrol subsidy rationalisation, Sales and Services Tax (SST), e-invoice and stamp duty. 'The overhang in the implementation of the targeted RON95 petrol subsidy rationalisation remains,' it said. It noted that it appeared that the official statements on the execution timing, responsibility and scope have changed from mid-year to 2H25. Another change was from the exclusion of the top-15% (T15) income group to exclusion of the top-5% (T5) income group in terms of RON95 fuel subsidy eligibility — while maintaining the exclusion of foreigners. 'However, it is also worth noting that the government is incurring savings in fuel subsidies thanks to the drop in crude oil prices as well as firmer ringgit versus the US dollar,' it said. It noted that the Budget 2025 allocation for fuel subsidies was based on the average (Brent) crude oil price assumption of US$75 (RM319.50)-RM80 per barrel versus US$72 per barrel year-to-date (YTD). 'We currently expect crude oil price to average US$67 per barrel this year, although the outbreak of Israel-Iran conflict poses upside risk to this outlook,' it said. — TMR This article first appeared in The Malaysian Reserve weekly print edition
New Straits Times
17-06-2025
- Business
- New Straits Times
KLCI extends weekly gains despite SST, geopolitical concerns
KUALA LUMPUR: The Kuala Lumpur Composite Index (KLCI) recorded its second straight weekly gain, edging up by 0.1 per cent on a week-on-week (WoW) basis. According to CIMB Securities Sdn Bhd, the uptick came in the wake of news that the United States and China had reached an agreement on a framework to implement their trade truce on June 11. "However, the positive momentum was partially offset by concerns over Malaysia's expanded Sales and Service Tax (SST)'s potential impact on corporate earnings and rising geopolitical risks after Israel launched strikes on Iranian military and nuclear sites, including in central Tehran, on June 13," it added. Meanwhile, the average daily trading value (ADTV) increased by four per cent WoW to reach RM2.1 billion. CIMB Securities said in the first quarter of 2025, real estate investment trusts (REITs) within its coverage posted earnings that met expectations. The sector's core net profit (CNP) saw a 13 per cent year-on-year increase, largely supported by acquisitions completed during the 2024 financial year. "However, we observed signs of weaker consumer sentiment, reflected in lower variable rent contributions among retail REITs. "We expect a more challenging second half of 2025 (2H25), with potential headwinds from the expanded SST and a possible review of electricity tariffs," it adds. CIMB Securities expressed a preference for Axis REIT, citing its strong upside potential, relatively steady cost structure, and a robust portfolio of tenants.
New Straits Times
13-05-2025
- Business
- New Straits Times
US-China tariff cuts to lift Malaysian equities, KLCI target held at 1,657
KUALA LUMPUR: The temporary tariff reduction agreement between the US and China is seen as a positive development for the equity market, as it lowers the likelihood of a US or global recession and could encourage greater net foreign investment in equities. Under the deal, the US will scale back its additional tariffs on Chinese goods from 145 per cent to 30 per cent, while China will reduce its tariffs on US imports from 125 per cent to 10 per cent. According to CIMB Securities, the banking sector stands to gain from this trend due to its strong liquidity position and its close ties to the domestic economic landscape. "The plantation sector may also benefit from stronger global edible oil demand and higher crude oil prices if the broader economy improves," it said. The firm noted that in the technology sector, easing trade tensions may boost global demand for semiconductors, with Malaysian tech companies expected to maintain their competitive advantage, as US tariffs on Chinese products remain significantly higher than those on Malaysian exports. "We believe Malaysian glove manufacturers continue to enjoy a cost advantage, as US tariffs on Malaysian imports remain at 10 per cent, compared with the reduced 30 per cent tariff imposed on Chinese imports," it said. CIMB Securities has kept its target for the Kuala Lumpur Composite Index (KLCI) at 1,657 points and plans to reassess this forecast after the first quarter of 2025 (1Q25) earnings season. "We continue to prefer domestic-oriented companies with stable dividend yields, particularly in the banking, telecommunications, utilities, construction, and healthcare sectors, to provide shelter from tariff-related headwinds," the firm added. However, CIMB Securities cautioned that uncertainties remain regarding the nature of the agreement that will result after the 90-day period and whether the current easing of tensions will be maintained. "Additionally, US tariffs on China, although reduced to 30 per cent, remain significantly higher than the 10 per cent tariff currently imposed on other trading partners," CIMB Securities added.
New Straits Times
11-05-2025
- Business
- New Straits Times
KLCI outperforms regional markets with 1.8pct April surge
KUALA LUMPUR: The Kuala Lumpur Composite Index (KLCI) climbed 1.8 per cent to reach 1,540 points in April 2025, outperforming both the Morgan Stanley Capital International (MSCI) Emerging Market Index and the MSCI All Country Asia ex-Japan Index. According to CGS International, within the Asean region, the KLCI outshone Singapore's Straits Times Index (STI), which was the only market to post a decline for the month, dropping 3.5 per cent month-on-month (MoM). Out of the 13 sectoral indices on Bursa Malaysia, five posted gains in April, with telecommunications, consumer, and healthcare emerging as the top three performers, recording MoM increases of 4.9 per cent, 4.2 per cent, and 3.4 per cent, respectively. In contrast, the energy sector was the weakest performer, slumping 9.2 per cent MoM, followed by transport and technology, which fell by 5.3 per cent and 4.7 per cent, respectively. "Out of the 30 KLCI companies, 20 posted share price gains in April 2025, with the three best performers on a mom basis being MR DIY Group (M) Bhd (19.1 per cent), Axiata Group Bhd (17.3 per cent), and Nestle (Malaysia) Bhd (17.1 per cent). "Notably, consumer and telco names made up eight of the top 10 gainers in the KLCI, which we think was due to the market shifting towards names with more domestic exposure that are relatively shielded from global uncertainties," it said. CGS International said Bursa Malaysia's average daily trading value dropped by 17.8 per cent month-on-month (MoM) to RM2.2 billion, while the average daily trading volume declined by 4.5 per cent MoM to three billion units. "We believe the stock market remained jittery and tentative in its trading in April, as President Donald Trump's Liberation Day tariff announcement on April 2 led to the market declining further before recovering as he subsequently announced a 90-day pause on additional tariffs above the baseline 10 per cent rate applicable to all countries. "This likely led to the mom decline in Bursa Malaysia's average trading value and volume, as investors stayed cautious amidst global geopolitics and economic uncertainties," it said. CGS International noted that the KLCI had a turbulent start to 2025, driven by external factors such as the US's restrictions on AI chips and newly re-elected President Trump's aggressive tariff measures. The firm acknowledged the ongoing macroeconomic uncertainties, highlighting that the unpredictability of US trade policy could negatively affect corporate earnings in Malaysia and weigh on overall market sentiment. "Our end-2025 KLCI target is 1,680 points," it added.
