PETALING JAYA: The shift in money flows towards less risky bond markets appears to be one of the factors behind the FBM KLCI’s poor performance over the past 2.5 months.
The prospects for further gains in bond markets continues to weigh on equity market sentiment, although signs of early support for the benchmark index at the key psychological level of 1,600 points have emerged.
The FBM KLCI lost 12.51 points, or 0.77%, yesterday to end at 1,604.07, near its one-year low, from its previous close of 1,616.58.
Tradeview Capital chief executive officer and founder Ng Zhu Hann said the pullback in artificial intelligence (AI) stocks could potentially put some uncontracted Malaysian data centre (DC) projects at risk.
“Temporarily, this AI trade is a little bit too frothy.
“When it comes down, the whole valuation premium can just suddenly go down in markets all over,” he told StarBiz.
“For those projects that are already contracted, they will continue to run, but those not yet contracted, investments approved but not yet commenced, can be at risk.”
Ng said tighter scrutiny of DC development in the United States following the Democrats’ midterm election win could still benefit Malaysia if strong demand for computing capacity creates room for projects elsewhere.
While Ng expects softer earnings momentum, he said any return of foreign funds could help the FBM KLCI recover.
Tradeview favours Hong Leong Financial Group Bhd
and Public Bank Bhd among banking stocks, alongside selected utility players such as Mega First Corp Bhd and PBA Holdings Bhd.
“Malaysia is still relatively cheap at this level, very attractive if positioned for the longer term, but the sentiment is now jittery and cautious,” Ng said.
“I believe the FBM KLCI is at a comfortable level for us to buy.”
“We have no tech names at the moment as tech has run up too much, too fast and too steep in the short term,” he said, adding that some technology stocks, including SkyeChip Bhd and Stratus Global Holdings Bhd, had retreated to more palatable levels.
Meanwhile, MBSB Research maintained its preliminary end-2027 target for the FBM KLCI at 1,850 points, saying a credible Middle East ceasefire could lift Malaysian equities even as uncertainty over US policy on AI weighs on technology stocks.
The research house said the Democrats’ victory strengthened the case for a phased negotiated settlement with Iran.
The incoming Congress could use its control over military funding and oversight to press for negotiations, although foreign policy remains under the executive branch.
“A Democratic Congress cannot compel the administration, Iran or other regional actors to accept an agreement.
“However, it can raise the political and financial costs of a prolonged confrontation,” MBSB Research said.
It attributed the immediate selloff in semiconductor and DC stocks to concerns about possible AI taxes and tighter regulation, which added to existing doubts about returns on capital expenditure (capex).
“This suggests that the market was not immediately pricing a recession. It was repricing the expected distribution of AI profits,” it said.
MBSB Research also said a sustained decline in Brent crude would be signal that traders viewed any ceasefire as credible.
“Lower fuel, freight and input costs would support corporate margins, while stronger household purchasing power could improve consumption.
“At the same time, lower bond yields would reduce companies’ financing costs and increase the present value of future earnings, allowing equity valuation multiples to expand,” it said.
For Bursa Malaysia, MBSB Research said the initial impact of the US technology selloff would be felt through valuations before any change in orders or earnings.
It kept a selective stance on technology, with Inari Amertron Bhd its only “buy” call in the sector, at a target price (TP) of RM2.95.
“Companies supported by diversified semiconductor demand and visible orders should be more resilient than names whose valuations depend principally on expectations of unconstrained AI capex,” it said.
“The principal risk is not an immediate collapse in demand. It is that hyperscalers become more selective, projects take longer to approve, and customers demand higher investment returns before committing additional capital,” the brokerage added.
MBSB Research favoured combining selective exposure to technology, construction and infrastructure with investments in utilities, telecommunications, healthcare and essential consumer stocks.
Its picks included Gamuda Bhd (TP: RM5.60), CelcomDigi Bhd (TP: RM3.54) and KPJ Healthcare Bhd (TP: RM3.70), all rated “buy”.
