PETALING JAYA: Fund managers in Malaysia are keeping their powder dry, sitting on sizeable cash piles as the Middle East tensions cloud the market outlook and push investors into wait-and-see mode.
In an interview with StarBiz, JP Morgan said many fund managers that it tracks have raised cash prior to the United States-Iran war that began on Feb 28.
“More cash has been raised. This should be deployed in the coming months once there is more clarity and visibility in terms of where earnings growth is heading to.
“The deployment also depends on risk appetite,” said JP Morgan head of Malaysia equity research Yen Voo.
She pointed out that the domestic mutual funds’ cash holdings rose 0.7 percentage points month-on-month in February to 6.2%.
“The lowest cash levels we have seen on average in the past was about 4.5% of total portfolio size,” said Voo.
Against the supportive domestic liquidity, JP Morgan continues to prefer liquid large-cap defensive, quality plays in Malaysia.
The investment bank has turned bullish on the country as it upgraded Malaysian equities to “overweight”, noting that the market’s steadier performance during bouts of global volatility reflects a set of underappreciated strengths.
These include a stable corporate earnings mix, robust domestic liquidity, and a resilient macro backdrop supported by a persistent current account surplus and long-term fiscal measures to reduce the budget deficit.
It is noteworthy that JP Morgan is “overweight” on only two Asean countries – Malaysia and Singapore.
JP Morgan also forecast the FBM KLCI to reach 1,800 points by end-2026, with a bull case scenario of 2,000 and a bear case of 1,450.
As at press time, the benchmark index of Bursa Malaysia stood at 1,714.77 points.
JP Morgan’s upgrade comes as Malaysia’s equity market has remained comparatively resilient amid heightened swings in risk sentiment.
In March, while regional indices such as the MSCI Asean fell 8% in US dollar terms, FBM KLCI only declined 4%.
In local currency terms, it was broadly flat, reinforcing Malaysia’s position as a market that tends to hold up better when risk sentiment weakens.
In a statement earlier, JP Morgan Malaysia chief executive officer Hooi Ching Wong said Malaysia stands out as a “bright spot” in an environment defined by global uncertainty.
Malaysia’s position as a net energy exporter also helps buffer the economy against volatile oil prices, according to Hooi.
Rajiv Batra, JP Morgan head of Asia & co-head of global emerging markets equity strategist, told StarBiz that the sustainability of earnings growth in the Malaysian equities space and domestic policy stability have largely led to the “overweight” stance.
“Strong tourist arrivals, if sustained over the rest of 2026, could provide additional benefits to the economy,” he said.
“The real test happens when there are stress situations. While it is transitory, the current energy supply shock that we are going through is a stress situation.
“That’s where Malaysia is relatively coming out as a winner, be it in terms of gross domestic product or earnings growth, when we compare among peers in Asia or other emerging markets,” said Rajiv.
JP Morgan is expecting an earnings per share growth of 8% in 2026 for the Top 50 listed companies of Malaysia, with the push mainly coming from sectors like banks, utilities and healthcare.
For 2027, a 6% growth is forecast.
Rajiv noted that thematic investments, for example, into data centres (DCs) and artificial intelligence (AI) as well as high-tech manufacturing are also a major push for the country.
These investments have spillover effects into other sectors through supply deals and contracts, benefiting a wide spectrum of players including small and medium companies in the technology sector.
In the Malaysian semiconductor space, Voo said JP Morgan’s preference has always been on memory and chip-related plays, which fit into the AI-DC theme.
JP Morgan also noted that tech earnings are improving ahead of positioning.
Front-end AI proxies offer clear earnings upgrades over the next six-12 months, while a recovery in radio frequency components and optical products are seeing traction.
That said, the bank has also flagged sensitivity to external demand as a key risk.
Tech products account for about 59% of Malaysia’s manufacturing exports, leaving the market exposed if global technology demand weakens.
Overall, JP Morgan believes that exposure to Malaysian equities could provide a tactical hedge against a prolonged oil supply shock, given the country’s marginal energy surplus and its defensive market characteristics.
As a net exporter of oil and gas, Malaysia is expected to face relatively less inflationary pressure and economic disruption in a higher oil price environment.
The bank estimates that in a scenario where oil prices rise to US$100 to US$120 per barrel, the fiscal deficit would remain broadly around 3.7% of gross domestic product (GDP).
Adding to the attractiveness of the local market, Malaysia also offers one of the highest dividend yields in Asean, underpinned by strong bank payouts and stable cash generation among large-cap companies.
Meanwhile, foreign ownership remains near historical lows at around 19%, creating an attractive risk-reward setup: improving earnings visibility and clear domestic growth drivers could gradually draw incremental foreign inflows.
“Malaysia’s defensive profile is further underpinned by strong investor momentum, with RM427bil worth of total direct investment approved in 2025.
“We estimate GDP growth of 4.6% for 2026, and key market catalysts can come from the implementation of the Johor-Singapore Special Economic Zone and more details on the “Value-up” framework under the Securities Commission’s Capital Market Master Plan, which aims to improve valuation and governance for listed companies in Malaysia,” said Voo.
