PETALING JAYA: Selective opportunities are still available on Bursa Malaysia despite lingering geopolitical uncertainties stemming from any escalating US-Iran standoff.
There are expectations that the commodity-linked and defensive sectors can continue to outperform even as broader market sentiment remains cautious.
iFast Capital assistant manager of research Kevin Khaw Khai Sheng said Malaysia is relatively better positioned than many regional peers because it remains a net oil and gas exporter, while the composition of the FBM KLCI, which is heavily weighted towards banks, utilities, plantations and commodity-related companies, provides a degree of resilience.
He said this partly explained why the benchmark index had managed to climb above the 1,700-point level recently despite cautious regional market sentiment.
“The escalating US-Iran standoff presents both opportunities and risks for Malaysia,” he told StarBiz.
“As a net oil-and-gas exporter, Malaysia is relatively better positioned than regional oil importers, while the FBM KLCI’s exposure to banks, utilities, plantations and commodity-related companies provides some support.”
However, Khaw cautioned that should crude oil prices remain above US$90 per barrel for an extended period, the negative effects on household spending, corporate profit margins and equity valuations could eventually outweigh the gains enjoyed by energy-related companies.
He said sectoral performance would likely diverge significantly under such a scenario.
Energy, plantation, utility and selected export-orientated companies could benefit from higher commodity prices, while airlines, logistics operators, consumer discretionary companies and businesses with limited pricing power would likely come under pressure from rising fuel and input costs.
“Banks and consumer staples should remain relatively defensive, although a prolonged economic slowdown could eventually affect loan demand and asset quality,” he said.
“We therefore remain positive on Malaysian equities but believe investors should adopt a more defensive and selective approach.”
On inflation, Khaw expects price pressures to build gradually as higher energy prices feed through transportation, freight, food and imported production costs.
He added that Malaysia’s fuel subsidy mechanism should cushion the immediate impact on consumers, although this would shift part of the financial burden to the government.
“We estimate the prolonged high oil prices could lift fuel subsidy spending towards RM40bil and push the fiscal deficit slightly above the government’s 3.5% target.”
Despite the heightened geopolitical risks, Khaw expects Bank Negara Malaysia (BNM) to maintain the overnight policy rate (OPR) at 2.75% throughout 2026.
Additionally, he noted that the headline and core inflation averaged 1.7% and 2.1%, respectively, during the first five months of the year, suggesting inflation remained largely supply-driven rather than demand-driven.
“The conflict reduces the likelihood of a rate cut and introduces a slightly more hawkish bias.
“A rate hike could be considered if higher energy costs begin spreading more broadly into food, wages and core inflation or result in sustained ringgit weakness.
“This is not our base case, however, and we continue to expect the OPR to remain at 2.75%,” he said.
Khaw added that foreign investor participation was also likely to remain selective rather than broad-based.
According to him, Malaysia could continue attracting regional portfolio rotation into banks, utilities and plantation stocks because of its commodity exposure and relatively attractive valuations, although a stronger US dollar, elevated US Treasury yields and continuing geopolitical uncertainty could still trigger intermittent foreign outflows.
Meanwhile, Berjaya Research research head Kenneth Leong shared a similarly cautious outlook, saying higher crude oil prices would be supportive of Petroliam Nasional Bhd (PETRONAS)-linked companies and upstream oil and gas players through improved earnings prospects.
“On the FBM KLCI, gains in PETRONAS-linked heavyweights and selected plantation stocks could provide support to the FBM KLCI.
“Nevertheless, broader market upside may remain constrained by higher energy costs as heightened geopolitical uncertainty dampens overall risk appetite.”
However, Leong said sectors such as airlines and transportation and logistics operators would likely experience margin compression due to higher fuel costs, although existing fuel subsidies could mitigate part of the impact.
Leong expects Malaysia’s headline inflation to average around 2% in 2026, supported by fuel subsidy mechanisms and relatively stable domestic demand.He also expects BNM to leave the OPR unchanged at 2.75% this year as inflation remains contained despite a modest increase and resilient economic growth.
On foreign fund flows, Leong noted that international investors generally become more cautious during periods of heightened geopolitical uncertainty.
“This was reflected in the RM5.83bil net foreign outflow recorded since March 2026. “Should tensions in the Middle East escalate further, continued foreign selling could cap near-term gains on Bursa Malaysia despite the support from commodity-linked sectors,” he said.
Meanwhile, CIMB Research expects the FBM KLCI to remain range-bound during the third quarter of financial year 2026 (3Q26) as investors navigate geopolitical uncertainty, election-related volatility, an emerging El Nino risk premium and uneven corporate earnings before strengthening in 4Q.
The research house maintained its end-2026 FBM KLCI target at 1,746 points, representing about 5% upside from the end-June level of 1,664, underpinned by forecast earnings growth of 7.5% this year and 5.5% in 2027.
CIMB Research said structural catalysts, including the pre-16th General Election policy cycle, the MY Value Up Programme, the GEAR-uP initiative and the proposed expansion of the FBM KLCI to 50 constituents, should support a gradual re-rating of Malaysian equities over time.
The research house recommended selectively accumulating fundamentally strong companies during periods of market weakness, favouring sectors including banking, building materials, healthcare, oil and gas, plantations, technology, telecommunications and transport.
Its top picks include Dialog Group Bhd
, Malayan Cement Bhd, IOI Corp Bhd, QL Resources Bhd, KPJ Healthcare Bhd, Public Bank Bhd, Telekom Malaysia Bhd, Gamuda Bhd, Hong Leong Bank Bhd, RHB Bank Bhd, Tenaga Nasional Bhd, Malaysian Pacific Industries Bhd and Axis Real Estate Investment Trust.
