PETALING JAYA: Bursa Malaysia’s FBM KLCI was one of many regional indices swamped by a tidal red wave yesterday, as South Korea’s Kospi led a purge that saw it dive almost 9% in early morning trade, before recovering fractionally to close 8.3% lower than last Friday.
That said, analysts believe the impact would largely be confined to technology- related sectors for the FBM KLCI, arguing that Malaysia’s strong private consumption and the local premier index’s more varied earnings profile would prevent a more widespread effect.
The Kospi’s tumble triggered circuit breakers after stronger-than-expected US jobs data heightened expectations that the Federal Reserve could keep interest rates higher for longer, representing another episode where good news stateside seemingly triggered an equities bloodbath in other parts of the world.
The sell-off was led by technology stocks, particularly chipmakers Samsung Electro-nics and SK Hynix, which fell more than 10% each in early trading.
The sharp decline prompted the activation of circuit breakers, suspending trading for 20 minutes.
It was the first such halt in three months, the third this year, and the ninth occurrence in the history of South Korea’s stock market. It closed 648.96 points, or 8% lower, at end-of-day.
The FBM KLCI likewise retreated 13.91 points or 0.82%, with Singapore’s Straits Times Index dropping 83.49 or 1.65%, while Hang Seng of Hong Kong closed 1.22% lower.
The Nikkei 225, the Stock Exchange of Thailand and the Shanghai Composite Index also finished in the red.
Economist and investment strategist at IPP Global Wealth, Mohd Sedek Jantan, affirms that the regional risk-off episode reflects a significant repricing of interest rate projections.
“As a result, market participants have reduced expectations for policy easing this year, leading to higher bond yields and a broad-based correction across duration- sensitive growth sectors, particularly technology and artificial intelligence (AI)-related equities,” he told StarBiz.
In such an environment, Mohd Sedek acknowledged that Bursa Malaysia is not entirely insulated from regional risk aversion, although he feels the impact is likely to be more pronounced at the sector level rather than for the entire index.
Tech-related counters, particularly those linked to the global semiconductor and electronics supply chain, may experience valuation pressure as investors reassess growth expectations and reduce exposure to higher-beta assets, he believes.
“Nonetheless, the FBM KLCI remains structurally less vulnerable compared with North Asian benchmarks due to its sector composition. Financial institutions continue to represent the largest weighting within the index and tend to demonstrate greater earnings resilience in a higher-for-longer interest rate environment.
“This contrasts with markets such as South Korea and Taiwan, where index performance is more heavily influenced by technology and semiconductor earnings cycles,” Mohd Sedek observed.
While near-term sentiment could remain cautious amid elevated global uncertainty, he said it is important to recognise that international investors are increasingly differentiating between technology-driven markets and domestically-oriented Asean economies.
Consequently, Mohd Sedek pointed out that periods of volatility could potentially accelerate portfolio reallocation towards markets offering more balanced earnings profiles, attractive valuations and lower concentration risk.
Notably, in that context, Bursa Malaysia may prove relatively resilient despite broader regional weakness, he added.
A head of research with a foreign brokerage resonated with Mohd Sedek’s views, telling StarBiz that the immediate spillover from South Korea is likely to be limited but negative.
“The first factor is regional sentiment contagion, as Asian markets often move in tandem during risk-off events.
“A sharp drop in one major index can trigger profit-taking or reduced buying interest across the region.
“Secondly, Malaysian companies with semiconductor or electronics supply chain links could see pressure, though not as severe as in South Korea. However, we believe global investors may reduce exposure to Asian equities broadly after such a jolt,” she said.
As such, the research head is expecting mild to moderate downside pressure on FBM KLCI, potentially testing recent support levels around the 1,650 to 1,680 levels.
On the other hand, she said the local premier index could prove relatively resilient if domestic institutional buying or bargain- hunting in defensives step in.
“Watch how other Asian indices, such as Nikkei or Hang Seng, perform for clues.
“Overall, this looks more like a South Korea-specific correction after an extreme AI-driven run, rather than a broad Asian meltdown,” she opined.
Should the South Korean tech-led correction deepen further, Mohd Sedek said Malaysia’s relatively strong domestic demand foundation will mean private consumption remains the principal driver of economic growth, providing a stabilising force for corporate earnings across multiple sectors.
He said this domestic demand buffer reduces the market’s dependence on external technology cycles and helps cushion the impact of global growth concerns.
From an equity market perspective, the FBM KLCI derives substantial support from financials, telecommunications, utilities and consumer-oriented sectors, all of which are more closely linked to domestic economic activity and generally exhibit lower earnings volatility during periods of external market stress.
“In addition, the banking sector in particular, could continue to provide an important anchor for market performance.
“A relatively stable interest rate environment, healthy credit growth and resilient asset quality should support earnings visibility, helping offset weakness in more cyclical and externally exposed sectors,” he said.
Looking at matters from the US data angle, however, the head of research projects more negative headwinds for Bursa Malaysia, with higher US yields and a stronger dollar weighing on emerging markets like Malaysia.
This could exacerbate selling in export-oriented or growth-sensitive sectors, although Malaysia does benefit from commodity exports, which can provide a buffer if global growth remains decent, she explained.
She said valuation-wise, FBM KLCI is generally not seen as overly stretched compared to regional tech-heavy peers.
“Our immediate outlook for the FBM KLCI is cautious to mildly bearish in the very short term.
“The index may face selling pressure and could consolidate or dip further toward 1,650 amid broader risk aversion.
“However, if US markets stabilise and there are no further negative surprises, bargain hunters could support a rebound, especially given Malaysia’s relatively attractive dividend yields in certain blue-chips,” said the head of research.
