Whither the stock market?

AS market speculation over Malaysia’s next general election gradually builds, investors are beginning to once again assess whether the country’s stock market could be ripe for a pre-election rally.

Historically, election periods have often been linked to increased excitement in the stock market, and hence, improved market sentiment.

What fuels this could be expectations of possible fiscal stimuli amid increased government spending, as well as stronger foreign interest. Conversely, investors may also stay away from the market amid uncertainties and a lack of clarity.

Some market observers say the investment landscape is far more complicated these days, with global interest rates, foreign capital flows and corporate earnings likely to outweigh domestic political developments.

Notably, the benchmark FBM KLCI has shown some resilience in recent months, with sectors linked to infrastructure, utilities and construction attracting renewed investor interest amid expectations of sustained public investment.

“Market observers are saying that unlike previous election cycles, this time around, investors are placing greater emphasis on policy continuity rather than outright political change,” says one seasoned market participant.

Areca Capital Sdn Bhd chief executive officer (CEO) and fund manager Danny Wong says history shows that “most of the time”, there has been increased rotational play ahead of elections as investors position for policy continuity, fiscal initiatives and higher government spending.

“The usual focus will be on the construction/infrastructure-related sectors (including building materials), property, consumer segments and banks,” he tells StarBiz 7.

Wong stops short of commenting on stock picks in the event of any specific party win or loss, but says Areca will be on the lookout for policy certainty, continuity and execution.

“We will go for Malaysia’s structural themes like technology, semiconductors, data centres (DCs), utilities and energy, manufacturing, and state developments.

“Currently, we are positive on foreign direct investment (FDI)-related sectors (manufacturing and DCs), and semiconductor and supply chain sectors, which are top-down picks. We are also positive on some bottom-up stocks backed by potential improvements in corporate earnings, such as laggards and beaten-down stocks,” Wong says.

AHAM Asset Management Bhd deputy head of equity (Malaysia) David Loh also does not want to comment on stock picks ahead of the 16th General Election (GE16), but says that after two consecutive years of positive gains, the FBM KLCI is entering a healthy phase of consolidation this year.

“While near-term sentiment is muted amid political distractions and potential earnings downgrades, long-term market fundamentals remain robust,” he says.

Meaningful impact

Loh notes that the “most exciting” engine driving future economic expansion is the Johor-Singapore Special Economic Zone (JS-SEZ).

“Backed by seamless cross-border connectivity and proactive policy framework, the JS-SEZ offers massive potential for FDIs. We have seen encouraging success in DC investments and expect other industries to follow suit soon, further cementing Johor as the next economic powerhouse for the country,” Loh says.

“Another key market driver would be the newly launched MY Value Up programme. Inspired by successful regional models, this initiative aims to boost shareholder returns by encouraging higher dividend payouts, active share buybacks, and enhancing governance standards. All these combined would bring meaningful impact to the market.”

Loh says ultimately, while short-term dynamics point towards healthy profit-

taking, the structural outlook for Malaysian equities remains positive.

Fortress Capital Asset Management fund manager and CEO Datuk Thomas Yong reckons the technology sector is “thriving” on strong external demand, directly benefitting from massive global artificial intelligence (AI) spending that will continue through the second half of the year.

“This booming tech cycle is also revitalising the construction sector. Growing FDIs into high-tech spaces and AI DCs are creating a highly profitable, multi-year pipeline of infrastructure projects for local builders,” Yong adds.

He notes that the economy is accelerating sharply, with second-quarter gross domestic product growth beating expectations at 5.8% due to strong manufacturing and mining activities.

“A massive over 40% surge in electronics exports is driving this momentum, likely to push full-year growth well past the 4.6% consensus forecast. Despite better-

than-expected economic growth, stock market valuations remain decent at 15 times 2026 price-to-earnings, offering investors a good entry point with decent returns,” Yong says.

To protect against global market volatility, he advocates defensive sectors like banks, telecommunications and utilities as these offer “excellent safety nets”.

“These steady industries feature reliable cash flows and resilient domestic demand. Trading at very reasonable valuations, these large-cap value sectors provide highly attractive dividend yields alongside good capital gain potential, making them a perfect, stabilising buffer for the investment portfolio,” Yong says.

He notes that his funds prefer a barbell investment strategy to capture maximum growth while managing downside risks.

“Investors should split their portfolios between high-growth technology and construction stocks to ride the AI infrastructure wave, and stable, high-yield defensive sectors for steady income.

“This highly flexible framework can be easily customised to perfectly match an individual investor’s specific risk appetite and financial goals.”

Ahead of GE16, one thing’s for sure – there will be a lot of noise.

History has taught investors that as campaigns start and eventually gather pace, traders and investors will undoubtedly react to policy announcements and shifting political dynamics.

However, the broader direction of Malaysia’s stock market is still likely to depend on the factors that are most vital to global investors – earnings and economic growth, interest rates and, very importantly, confidence in the country’s long-term investment outlook.