Cautious outlook for Malaysia's tech sector as trade uncertainty lingers
According to Hong Leong Investment Bank (HLIB), while initial signs indicate a relatively resilient second quarter, the outlook for the third and fourth quarters remains uncertain amid rising challenges.
"Three major headwinds underpin our view. First, end demand visibility remains constrained by unresolved US tariff policies, especially on sectoral tariffs for chips."
The research house added that although the supply chain initially pulled in demand to cushion tariff risks, this trend is unlikely to continue once channel inventories normalise.
Secondly, HLIB highlighted that Malaysian companies are starting to face rising cost pressures in 2H25.
This includes higher electricity tariffs and the mandatory two per cent Employees Provident Fund contribution for foreign workers, which may be difficult to fully pass on to customers.
Thirdly, the firm said earnings could also be affected by foreign exchange headwinds, as the ringgit has appreciated by around five per cent against the US dollar year-to-date.
"Against this backdrop, we see limited scope for a positive inflection in the near term; sentiment is likely to remain subdued until earnings expectations are reset and the outcome of US tariff policy becomes clearer," it added.
HLIB noted that the Kuala Lumpur Technology Index recorded a sharp decline of 21.4 per cent in the first half of 2025 (1H25), significantly underperforming the broader Kuala Lumpur Composite Index, which fell by 6.7 per cent during the same period.
"Yet, this does not tell the whole story, as it was a volatile period marked by a pronounced V-shaped recovery after Liberation Day in April, where selective buying of oversold names would have generated meaningful alpha," it added.
HLIB highlighted several key events to keep an eye on in the near term, which included the expected announcement in August on Section 232 sectoral tariffs for semiconductors and related equipment, as well as the August 1 deadline for implementing reciprocal tariffs.
It said the upcoming July and August earnings season will also be closely watched, as companies begin to provide guidance for the 2H25.
Additionally, the timing of potential interest rate cuts by the US Federal Reserve remains a crucial factor.
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