PETALING JAYA: Investors are breathing a sigh of relief after the United States and Iran agreed to a ceasefire that includes an “immediate and permanent” end to military operations, sending oil prices lower and Asian equities higher.
However, experts caution that whether Malaysia can fully capitalise on improving sentiment will depend not only on the durability of the peace agreement, but also on domestic political stability and its ability to attract foreign funds.
Brent crude fell 5.1%, or US$4.49 (RM18.19), to about US$82.84 a barrel by 5pm yesterday, after touching an intraday low of US$82.61, amid expectations that the reopening of key oil shipping routes could ease global energy shortages.
The relief spilled over into Asian equities, with Japan’s Nikkei surging 5%, South Korea’s Kospi gaining 5.2% and Indonesia’s Jakarta Composite Index rising 4.1%.
Closer to home, however, Malaysia’s benchmark index lagged behind its regional peers.
The FBM KLCI rose just 0.5%, or 7.76 points, to close at 1,691.39, despite reaching an intraday high of 1,697.48, while Singapore’s Straits Times Index advanced 1.02%.
Economist Yeah Kim Leng said the “peace deal” provided much-needed relief to the global economy, as concerns over supply disruptions and rising inflationary pressures had intensified in recent weeks.
He said the plunge in oil prices reflected that the world is “breathing a sigh of relief”, adding that the safe passage of vessels through the Strait of Hormuz and Red Sea shipping routes would strengthen energy security and ease inflationary pressures.
However, Yeah cautioned that negotiations remain ongoing and that securing a lasting peace would be “more challenging”, though the agreement has given markets and businesses “hope” that further disruptions can be avoided.
“The peace deal must hold,” he said, adding that damaged oil and gas facilities would need to be rebuilt before supply shortages ease meaningfully.
He expects oil prices to eventually moderate to around US$70 to US$80 a barrel if peace is sustained, supporting global economic recovery, including in Malaysia.
According to Yeah, the conflict had already weighed on global growth prospects, shaving about 0.2% off the International Monetary Fund’s (IMF) growth forecast for this year.
In April, the IMF downgraded its 2026 global growth forecast to 3.1%, while the World Bank recently lowered its 2026 projection to 2.5%, warning that growth could slow further to 1.3% should energy supply disruptions intensify and trigger financial market stress.
“If a long-term agreement is secured, then we may see an upward revision of the downgraded forecast,” Yeah said.
Yeah expects Asia to be among the biggest beneficiaries of a sustained peace agreement, as concerns over energy shortages had begun to weigh on industrial activity across the region.
He said Malaysia stands to benefit from its deep integration into global supply chains and trade networks.
“Malaysia will rebound stronger than other countries, especially because of its integration with the global supply chain,” he said.
He added that stronger global demand, reconstruction activities in the Middle East and easing inflationary pressures from lower oil prices would support trade and manufacturing activity.
“That consumption uptick in the global economy because of the agreement will be quite significant.
“Malaysia will be a key beneficiary because of its large trade sector, which makes up 120% to 130% of gross domestic product. We will benefit from the demand recovery.”
Tradeview Capital chief executive officer and founder Ng Zhu Hann said markets were encouraged by signs that the conflict may be nearing an end.
“A prolonged war never benefits anyone,” he said, adding that investors are likely to turn more optimistic now that there appears to be “light at the end of the tunnel”.
However, he cautioned that supply chains would not normalise overnight even if shipping routes reopen.
“It will probably take one to two quarters before things go back to normalised levels. Nonetheless, it’s very positive for the markets as a whole.”
He added that the key assumption remains that no parties violate the ceasefire or trigger renewed instability.
On concerns over slowing economic growth, Ng said markets tend to look ahead once negative news has been fully priced in.
“If the bad news is all fully digested and things are looking towards normalisation, then they will look beyond the bad news that has been happening in the past few months,” he said.
Despite improving sentiment, Ng said domestic political developments remain an important consideration for foreign investors.
“Foreign investors want to see policy consistency,” he said.
“With the potential fluid political situation in Malaysia, a lot of foreign funds will flow out. Or, even if they want to come back in, they will still wait and see.”
He added that sustained foreign inflows are required for markets to reach new highs.
“For our country’s stock market to go up or create new record highs, we need foreign funds to come in, in a big way.”
Ultimately, he said, improving global sentiment does not necessarily guarantee a return of foreign funds in the near term.
“Sentiment is better, but it doesn’t necessarily guarantee foreign fund flow returning to Malaysia in the near term due to fluid political situations.”
In that context, several regional markets have rolled out “value-up” initiatives aimed at improving corporate valuations and shareholder returns.
Ng noted that while markets, such as South Korea, Japan and Singapore are pursuing similar reforms, Malaysia’s framework remains voluntary and its impact is still too early to assess.
“The difference between Malaysia and them is that ours are not mandatory, it’s on a voluntary basis. So, the impact from our value-up initiative is still too early to tell.”
Separately, Rakuten Trade recently lowered its end-2026 target for the FBM KLCI to 1,770 points from 1,800, citing rising global macroeconomic risks despite Malaysia’s relatively resilient fundamentals.
The brokerage said the revised target is based on a 17-times calendar year 2026 price-earnings ratio.
Its head of research Kenny Yee warned of a “deadly love triangle” of rising national debt, lower interest rates and weakening currencies.
