PETALING JAYA: Experts are divided in their outlook for Bursa Malaysia over the next few weeks, following the military attacks carried by the United States and Israel on Iran over the weekend, resulting in a sea of red that enveloped regional markets yesterday.
The FBM KLCI was lower by 16.40 points or 1%, in line with Singapore’s Straits Times Index (minus 2.32%), Hong Kong’s Hang Seng (minus 2.14%), Japan’s Nikkei 225 (minus 1.35%) and Korea’s Kospi (minus 1%) as investors reacted in sync towards the skirmish in the Middle East.
A number of analysts are concerned that this second attack by the US on Iran in eight months could be more protracted than the previous initiative launched in June 2025, as President Donald Trump has indicated at regime change by his message to the Iranian people to “take back” their country following the assassination of supreme leader Ali Hosseini Khamenei.
On the flipside however, some are confident that the latest confrontation will be brief, given Trump’s own dislike for protracted conflicts and the obvious knowledge that a drawn out fight would mean a higher risk that the essential Hormuz Strait will be closed, strangling intercontinental business operations.
Kenanga Research, for one, writes “the risk is of prolonged tension given the complexities in toppling a regime”.
In the immediate term, the brokerage firm said the risk premium comes from the possibility of Iranian retaliation.
“We will also have to watch for reactions from superpowers. Geopolitically speaking, China for example would also have indirect interest given its position as a large buyer of Iranian oil. So far, China has urged a return to negotiations,” it said in a report published yesterday.
According to MBSB Research, a US-Iran conflict in 2026 carries significant trade risks for Malaysia, primarily through indirect channels like supply chain disruptions and secondary sanctions rather than direct trade loss, as it warned that the main vulnerabilities lie not in direct exports to Iran but in broader trade and financial spillovers.
The research house highlighted the risk of escalating US trade action, noting that an additional 25% ‘Iran penalty’ would raise the total tariff on Malaysian goods to 44%.
MBSB Research cautioned that this would severely deteriorate Malaysia’s trade performance, particularly within the electrical and electronics (E&E) sector.
“The government faces a delicate balancing act: upholding its national sovereignty and historical ties with Iran while avoiding any escalation that could jeopardise its newfound preferential access to the United States market,” it said.
With the United States accounting for 14.5% of Malaysia’s exports in 2025 versus just 0.1% to Iran, the firm expects policymakers to prioritise trade stability.
The research house added: “We expect the government to adopt a stance of ‘active neutrality’ that leans toward compliance with US measures to safeguard the nation’s primary export engine.”
On sector exposure, while man-made staple fibres represent a notable share of exports to Iran due to its textile industry’s limited domestic raw fibre capacity, the United States remains far more significant overall, particularly in rubber, iron and steel.
The United States absorbs around a quarter of Malaysia’s rubber exports, underscoring its strategic importance.
MBSB Research outlined three potential scenarios, where in the first, a short two-to three-week conflict with no sustained disruption to the Strait of Hormuz would see only a temporary spike in oil prices, with limited impact on global trade and Malaysia’s growth trajectory, aside from a modest boost to petroleum revenues.
The second scenario assumes a short conflict but prolonged disruption to Hormuz, pushing crude prices towards US$100 per barrel, lifting global inflation and eroding household purchasing power, while dampening external demand and export growth.
The third and most severe scenario involves a prolonged multi-week conflict with sustained impairment of shipping lanes, triggering oil prices well above US$100, tighter financial conditions and weaker global growth.
In this case, Malaysia’s growth could slow to around 2.5% to 3.5% if external demand subtracts one to two percentage points from growth.
Looking at the brighter side, Hong Leong Investment Bank (HLIB) Research said its base case assumption is that the ongoing war will be short-lived – akin to the 12-day confrontation last year, despite acknowledging that predicting the duration of armed conflicts is “a shot in the dark”.
“Consequently, we envision a temporary oil price spike before an eventual normalisation back to the US$60 to US$70 per barrel levels.
“While higher oil prices will push Malaysia’s petrol subsidy bill higher, we do not expect the government to alter its 2026 fiscal deficit target of minus 3.5%,” it said.
The research outfit pointed out that Trump’s address to Iranians suggested that he does not intend to get entangled in a prolonged war, noting that in the past, Trump has been a critic of the US’ long drawn wars with Afghanistan and Iraq.
That said, it predicted that the ongoing war will likely create some near term market weakness, underpinned by the belief that higher oil prices in the short term may dial back expectations on the pace and quantum of the Federal Reserve’s (Fed) rate cut trajectory.
“In turn, this may accord temporary strength to the dollar and on the flipside, contribute to the ringgit weakness. The latter effect, in our opinion, could reverberate to the local stock market.
“Nevertheless, as we take the view that the exogenous events in the Middle East should eventually de-escalate, we retain our constructive view on the Malaysian stock market with a 2026 KLCI target of 1,790,” said HLIB Research.
At the opening bell yesterday, it is worth noting that energy counters on Bursa Malaysia bucked a broader market selloff as escalating US-Israel military strikes on Iran drove oil prices sharply higher.
The Bursa Malaysia Energy Index rose nearly 3%, with more than a dozen constituents posting gains.
Dialog Group Bhd
, the sector’s largest company by market capitalisation, climbed as much as 6%, while Hibiscus Petroleum Bhd jumped 14% to RM1.83.
Oil prices surged following reports of attacks on vessels near the Strait of Hormuz, a key chokepoint that handles roughly 20% of global oil supply, with Brent crude climbing more than 5% to US$76.61 at the time of writing
Meanwhile, a currency dealer told StarBiz that the ringgit, which opened weaker yesterday and was trading at around RM3.93 to the dollar at 5pm yesterday, faces mild to moderate further depreciation likely toward 3.95 to 4.00 or beyond if escalation persists, as the greenback benefits from haven demand and higher inflation risks reinforce Fed caution on cuts.
“If the conflict escalates with oil spiking to US$90 to US$100 per barrel, the ringgit could test 4.00 to 4.05 or weaker temporarily, as global emerging market outflows and imported inflation pressures dominate,” she said.
