Will there be stability in 2H?
Markets have been tossed by crosscurrents of global conflict, policy shocks, and investor anxiety. And yet, through all the noise, Malaysia has held its ground.
The FBM KLCI, though not immune to volatility, demonstrated tenacity, underpinned by resilient fundamentals and steady macro stewardship.
In an environment where the unexpected became the norm, Malaysia remained a beacon of relative calm in a turbulent world.
Flashpoints and Fallout: How Global Conflict Reshaped Market Behaviour
Few forces rattle markets more swiftly than war and H1 2025 offered no shortage of flashpoints.
The Middle East conflict escalated dramatically with Israeli strikes on Iranian nuclear facilities, drawing U.S. military support and spurring global fears of a wider confrontation.
For Malaysian markets, this sparked a sharp risk-off pivot. Oil prices surged, lifting our Energy Index, but equity sentiment broadly softened as capital moved to safe havens.
Meanwhile, the protracted Russia-Ukraine war continued to strain global commodity supply chains.
Elevated palm oil prices offered some tailwind to local plantation counters, but the ripple effects, particularly in feedstock costs were a reminder of our embeddedness in a fragile global supply web.
Tariffs, Tensions and the Trade Trap: Navigating a Fragmented Global Economy
The Trump administration's sweeping tariffs, peaking at 145 per cent on Chinese imports sent shockwaves through global supply chains.
Malaysia, deeply integrated into regional manufacturing, absorbed the aftershocks. Our exporters, especially in semiconductors and renewables, were caught in the crossfire.
The FBM KLCI fell over five per cent on April 2 following intensified tariff rhetoric, with risk assets broadly repriced.
Adding to the strain, Malaysia was slapped with a 34.4 per cent import duty on solar panels, an outsized blow to our green energy sector.
Global investors fled to safety; gold prices soared past US$3,400/oz. Yet amid this, the ringgit showed quiet strength, rising 0.8 per cent in Q1, a nod to investor faith in Malaysia's fiscal prudence.
Relief came in May, when the US and China moved to de-escalate. Tariff rates were rolled back US duties cut to 30 per cent, China's to 10 per cent and a 90-day pause was announced.
The KLCI rallied 2.33 per cent, buoyed by returning risk appetite and hopes of normalised trade flows. Still, unpredictability looms large, and any re-escalation will test Malaysia's resilience again.
Rates, Risk, and Resilience: How Policy Signals Shaped Investor Positioning
The global interest rate landscape was the third pillar shaping investor behaviour in H1. The US Fed held rates at 4.25-4.50 per cent, cautioning against premature easing due to tariff-induced inflation risks.
This 'higher-for-longer' narrative kept a lid on valuations for rate-sensitive sectors like property and tech.
However, a cooling inflation trend and softening growth expectations rekindled hopes for Q4 rate cuts. The ringgit appreciated about five pe rcent against the US dollar in H1, making it one of the strongest Asian currencies this year.
It was further supported by RM13.4 billion in net foreign bond inflows, a testament to Malaysia's safe haven appeal in the region.
Bank Negara Malaysia, staying its course with an OPR at 3.00 per cent, has
successfully struck a delicate balance between supporting growth and anchoring inflation.
Outlook for H2 2025: From Turbulence to Tactical Positioning
As we pivot into the second half of 2025, investors must brace for persistent global volatility but also recognise the windows of opportunity it presents.
The geopolitical landscape remains fluid. Any breakthrough in the Middle East or progress in the Ukraine conflict could unlock relief rallies, while renewed hostilities may keep risk appetite in check.
Malaysia's equity markets are particularly sensitive to oil price volatility, where sharp spikes could strain inflation and subsidies, but also boost
energy-linked counters.
On the trade front, August's US-China tariff truce deadline looms large. If it leads to a lasting deal, Malaysia's export engine could rev up again, rewarding tech, logistics, and manufacturing sectors.
If talks break down, investors should expect a return to defensive positioning. Staying nimble and sector-focused will be critical.
Monetary policy remains the market's compass. With the Fed signalling possible Q4 rate cuts, global liquidity may begin to normalise.
A weaker US dollar could strengthen the ringgit further and revive foreign flows. Bond yields may stabilise, benefitting capital-intensive and domestic consumption-driven sectors.
Bank Negara Malaysia may join the easing cycle but is likely to remain data-dependent.
Investors should track inflation trends and fiscal reform progress, especially the targeted subsidy rollout.
Tactically, there is scope for selective sector rotation. Technology and construction may outperform if growth tailwinds return, while banks stand to benefit from loan growth recovery.
Commodities and plantations remain tied to global cycles, but with El Niño risks and robust palm oil demand, upside remains plausible.
Bottom line: H2 2025 is not without risk, but it offers a chance for calculated gains.
Patience, diversification, and readiness to reposition swiftly will be key. Malaysia, underpinned by sound governance and regional relevance, remains a compelling story for long-term investors looking to turn uncertainty into strategic opportunity.
The turbulence of early 2025 may well give way to calmer - or at least more predictable - seas, in which the Malaysian economy and the FBM KLCI can find firmer footing.
Conclusion: Staying Strategic in a Shifting Landscape
In light of continued volatility, Malaysian investors may consider the following actions:
1. Diversify across resilient sectors. Exposure to infrastructure, domestic services, and financials may help buffer external shocks.
2. Reassess export-heavy positions. Monitor global demand and currency strength, especially for manufacturing and E&E sectors.
3. Stay defensive where needed. Utilities and consumer staples offer stability when uncertainty prevails.
4. Use safe-haven assets selectively. Gold's sustained strength reinforces its role in hedging macro risk.
5. Monitor macro and policy shifts closely. Policy changes at home and abroad will shape sector leadership and capital flows.
Ultimately, investing in uncertainty is not about avoiding risk, but managing it.
In a world shaped by rapid change, staying informed, agile and disciplined will be the hallmark of successful strategies.
Malaysia remains well-positioned, with strong governance, regional relevance, and compelling valuations to weather short-term turbulence and unlock long-term growth.
*The writer is the head of dealing at Moomoo Malaysia.
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