PETALING JAYA: “Make hay while the sun shines” appears to be the motto for fund managers and analysts, even as uncertainty looms over the Middle East conflict between the United States-Israel and Iran.
In investment terms, it means positioning your money amid the chaos.
Experts agreed that the global market volatility since the conflict erupted on Feb 28 is largely driven by knee-jerk reactions to geopolitical events.
The FBM KLCI, for example, plunged to 1,667.06 the following Monday before quickly rebounding above the psychological 1,700 level the next day.
The equity team at Areca Capital told StarBiz that local stocks remain attractively valued relative to historical averages, presenting opportunities for selective positioning. They are implementing a 3S Strategy (3S) in portfolio management.
“We use shield, strike and squat, which respectively means we protect our portfolios through diversification and prudent risk management, as we selectively deploy capital when quality assets are mispriced, while also remaining patient and disciplined during periods of market volatility.
“We believe the FBM KLCI is trading at a meaningful discount to historical valuations, presenting a selective entry opportunity rather than a cause for alarm.”
Areca Capital said geopolitical-driven selloffs often compress valuations indiscriminately, creating ideal conditions for disciplined investors to deploy capital.
The fund manager saw value concentrated in a few specific areas, highlighting that banking heavyweights remain attractive given their strong dividend yields, improving loan growth trajectory, and as direct beneficiaries of a stronger ringgit.
“On the energy side, selected upstream and services players stand to benefit from elevated oil prices, though we are selective given the cyclical nature of that exposure.
“Construction and utilities continue to be anchored plays, given Malaysia’s ongoing infrastructure pipeline.
“Should broader risk-off sentiment deepen circa 5% from current level, valuations would become even more compelling on a price-to-book basis,” it said.
IPP Global Wealth economist and investment strategist Mohd Sedek Jantan echoed the knee-jerk sentiment, telling StarBiz that market corrections triggered by global factors tend to recover faster because of the longer-term impact these factors have on sentiment.
This means sentiment can improve even with minor positive developments in the external environment.
Mohd Sedek pointed out that sharp market declines are often driven by panic selling, which can create opportunities for technical rebounds.
“The recent drop also pushed the market below key psychological levels (1,700), prompting some investors to rotate into safe-haven assets or reduce exposure to more cyclical and aggressive sectors.”
He said the 1,680 level would likely attract selective bargain hunting, particularly in sectors where valuations have corrected significantly and technical indicators are approaching oversold levels.
Mohd Sedek further outlined that the technology, healthcare, financial, and consumer and services sectors could continue to attract bargain hunting interest, particularly among heavyweight counters, as some segments of the market approach oversold territory.
“However, if geopolitical tensions escalate further and global risk sentiment deteriorates, the next technical support level for the FBM KLCI could be around the 1,650 to 1,660 range, which historically serves as an important support zone for the market.”
Flexibility in case of prolonged war
Areca Capital equity team acknowledged that its expectation is for elevated but manageable volatility in the near term, adding that it would become more cautious on a sustained closure of the Strait of Hormuz or if material escalation disrupts global shipping and energy supply chains.
“At the portfolio level, our hedging approach is built into the structure of our holdings rather than relying on derivative overlays.
“We achieve this through three mechanisms: first, maintaining exposure to high-dividend-yield names that provide income cushion during drawdowns; second, keeping a meaningful allocation to domestic-demand-driven sectors that are less correlated to global macro volatility; and third, holding sufficient liquidity so that we can act decisively when dislocations create genuine value.”
Mohd Sedek said should geopolitical disruptions significantly push oil prices higher and begin to feed into inflation, central banks may be forced to tighten monetary policy further by raising interest rates.
“Such a combination of higher inflation and tighter monetary conditions would likely trigger a stronger risk-off sentiment across global financial markets. In that environment, we would adopt a more cautious stance towards Malaysian equities.”
He said this could lead to a more conservative asset allocation, with greater emphasis on fixed income instruments and defensive sectors that tend to be more resilient during periods of uncertainty.
Maintaining a higher level of liquidity also provides flexibility to respond to market volatility and adjust exposure as conditions evolve, he added.
Tradeview Capital chief investment officer Nixon Wong said should the war escalate to affect major shipping routes and supply chains, or if oil price spikes to US$120 a barrel again, then it would be advisable to reduce cyclical exposure.
He suggested for investors to keep 20% to 30% cash on the sidelines to allow for flexibility during sharp corrections and maintain sector diversification into banks, utilities and dividend-yielding stocks.
“High quality blue chips are more in focus during this bargain-hunting period, and maintaining discipline on a balanced asset allocation strategy with a healthy cash level remains a reliable strategy.” Fundamentals prevail
Areca Capital appeared sanguine in spite of the Middle-East skirmish, as it noted that market action last week has reinforced one of its most deeply held convictions: Markets overreact to headlines in the short term, but fundamentals ultimately prevail.
“The pattern of sharp initial selloffs followed by bargain-driven rebounds is not new, it mirrors behaviour we have seen repeatedly across past geopolitical episodes, from the Gulf crises of the early 1990s to the more recent Russia-Ukraine escalations,” it said.
The firm said the lesson to be gleaned is to not be paralysed by volatility, but to be prepared for it, meaning having a clear framework for what constitutes genuine value, maintaining the liquidity to act when others are selling in panic, and having the discipline not to chase momentum in either direction.
“For our 2026 strategy on Bursa Malaysia, last week has affirmed that our 3S approach remains the right architecture. We are entering this year with a constructive but measured outlook where the domestic fundamentals are sound, Malaysia’s positioning within global supply chain realignment is a genuine structural tailwind, and valuations offer a margin of safety.”
Areca Capital remains committed to staying agile, diversified, and grounded in long-term thinking rather than short-term noise.
According to Mohd Sedek, another important lesson is that fundamental analysis remains critical despite the increasing use of artificial intelligence and algorithm-driven analysis.
“Investors who focus on underlying economic and corporate fundamentals are generally better positioned to navigate these fluctuations,” he explained.
