PETALING JAYA: “Higher for longer” rates in the United States and the new policy regime in Washington is set to dominate investor sentiment and equity investment activity for much of 2025.
The Donald Trump administration action to proceed with tariffs on Mexico, Canada and China effective this month are set to heighten trade tensions, possibly dampen global economic growth and drive inflation higher in the United States as the Federal Reserve signalled a slower pace of rate normalisation in 2025, backed by a labour market that remains strong.
With headwinds building on the macro level, analysts expect big investors to seek risk returns in developed markets like the United States equity market whose market capitalisation to the rest of the world has approached an historical high of 70% in 2024.
MSCI Inc, in a recent report, noted a handful of US mega-cap stocks – fewer than 40 names, including the widely followed Magnificent 7 – accounted for over 30% of global equity capitalisation, as of Dec 31, 2024.
The Big Tech companies trade at twice the multiples of its emerging and other developed market peers due to a artificial intelligence (AI) growth premium which helped US equity markets outperform the rest of the world by 17% in 2024.
The DeepSeek AI app launch in particular has rattled the Magnificent 7 led rally in the United States with analysts expecting money moving into non-tech counters.
“We observed that while US growth stocks (ie US tech stocks) saw sell-off recently, the value and cyclical heavy US Dow Jones has gained ground.
“We postulate that there could be temporary switching by investors from growth to value and cyclicals and this could be the trend at least in the short term.
“In terms of emerging markets versus developed markets, there are a number of influencing factors. A risk-off sentiment could see investors favouring safe haven markets at the moment,” said Imran Yusof, director and head of the research department at MIDF Amanah Investment Bank Bhd.
That tech and tariff thematic was also at play on Bursa Malaysia last week with MIDF Research expecting this decline to be temporary,and investors should hold on to their stocks, and even consider buying in on the dip.
The AI chip control measures by the United States initially brought about concerns over the viability of data centres in Malaysia, but with advancements like DeepSeek, the narrative has shifted.
In fact, it said DeepSeek could very well be a game-changer.
With a reduced dependency on large graphics processing units (GPU) volumes, the operational challenges posed by the ban are minimised, thus making its relevance even more significant.
“The sector continues to benefit from increasing demand for AI-driven applications, cloud computing, and digital services. While the market has experienced short-term volatility, these developments position data centres as even more integral to technological progress, offering significant long-term value for investors,” MIDF Research opined.
On top of that, news reports of slowdowns especially from entities like Stargate are largely overblown, because while its plan includes building infrastructure in the United States, it’s not feasible to centralise all data centre operations there due to immense power and water requirements.
“The feasibility of consolidating all data centres in the United States is highly questionable given the massive energy and cooling requirements. Moreover, the rise of DeepSeek – a Chinese AI model reportedly achieving ChatGPT-level performance using only 2,000 H-800 Nvidia chips restrictions.
“If DeepSeek’s efficiency claims hold true, US firms would achieve the same processing power using far fewer GPUs,” said Imran.
Malaysia remains an attractive option for operators, particularly from the United States, as they look for geographically diverse locations to ensure resilience and redundancy.
“Moreover, data centres serve a wide range of purposes beyond AI, including cloud-based services, backup storage, and disaster recovery. This diversification ensures the long-term viability of the sector,” it said.
MIDF Research said despite some Bursa Malaysia companies experiencing sell-offs and uncertainty, there is still an opportunity to leverage on this.
It noted with all the new information coming out everyday, there was bound to have some short-term volatility among investors.
“Once the market fully digests this information, the narrative will shift to highlight the resilience and adaptability of data centres.
Companies like YTL Power International Bhd
and Nationgate Holdings Bhd are well-positioned to benefit from these trends as the market stabilises and realises that the data centre play is evolving, not declining.”
Meanwhile, Maybank Securities analyst, Hussaini Saifee concurred, saying the impact is likely to be limited here in the region. He opined the demand in the Asean region for data centres is driven by traditional compute and storage requirements.
“Even on the GPU restrictions, we think US restrictions are generous enough to impact the projected demand in Asean.
“Under new US restrictions, companies headquartered in Tier-1 countries can deploy no more than 7% of their total computing power in any Tier-2 country.
“Large investments in Asean are announced by US based hyperscalers and we estimate those investments are in the 2% to 3% range per market of their expected AI-linked investments globally,” he said.
As an example, Microsoft Corp pledged US$2.2bil in cloud and AI investment in Malaysia whereas its planned financial year 2025 global investment is US$80bil, while Tier-2 headquartered companies, through national validated end user, can deploy 690,000-equivalent H100 GPUs over 2025 to 2027.
“We estimate this will entail total investment of US$17bil whereas we estimate the largest deployment in Asean is US$4.3bil by YTL Power.
“Given this, we think the United States restrictions are accommodative and announced data-centre builds are unlikely to be impacted even in Malaysia, which has attracted the bulk of the investments,” he noted.
Hussaini said the data centre craze is definitely not over, especially since new innovations are mushrooming.
“On the demand side, we think DeepSeek’s breakthrough is going to help accelerate and democratise AI adoption within low-mid tier companies as the cost of adoption comes down. DeepSeek’s breakthrough also helps to alleviate the supply concerns as companies no longer have to be dependent on GPUs that the United States wants to restrict,” he said.
“Moreover, as US-China AI competition intensifies, it will lead to accelerated innovation into deeper AI technologies like artificial general intelligence which are highly GPU-intensive.”
Another headwind to keep an eye on is coming from the east where China faces deflationary pressures. Its decoupling from global trends is striking.
The country’s 30-year sovereign yields have dropped below those of Japan,” says MSCI.
“In this environment, tariffs and their drag on exports could further intensify deflationary concerns,” MSCI noted. “So look out for policy support from Beijing as Trump institutes his tariff rhetoric.”
