22-04-2025
- Business
- New Straits Times
Construction sector still solid despite risks from US tariffs: HLIB
KUALA LUMPUR: Malaysia's construction sector remains on solid footing despite mounting macroeconomic risks sparked by the latest wave of US tariffs, according to Hong Leong Investment Bank Bhd (HLIB).
However, the firm warns of emerging second-order risks – notably a slowdown in trade-related jobs and a potential pullback in data centre (DC) capital expenditure.
Liberation Day, marked on April 2, saw sweeping tariffs imposed on over 180 global trade partners, with Asean countries hit by reciprocal rates between 10 per cent and 49 per cent.
Although the US paused retaliatory tariffs for 90 days from April 9 to facilitate negotiations, the lack of follow-through has left markets jittery.
HLIB said the Kuala Lumpur Construction Index (KLCON) has fallen 4.3 per cent since the announcement, compounding its year-to-date decline to 12.4 per cent.
The firm noted that trade-related construction jobs, which historically comprise nine per cent to 12 per cent of annual flows (RM2 billion to RM4 billion), are now facing investment deferments as clients adopt a cautious wait-and-see approach.
"In our view, the on/off nature of tariffs could result in deferment of investment decisions affecting the flow of industrial jobs, excluding DCs.
"Channel checks indicate that some investors might scale back investment or expansion during this period of uncertainty adopting a wait-and-see approach," the firm said.
HLIB pointed out that the tender activity is robust and the DC contract awards are expected to accelerate from the second quarter, with mega-projects potentially materialising in the second half.
The firm said early indicators from Tenaga Nasional Bhd's electricity supply agreement (ESA) pipeline also show power infra capacity increased by 26 per cent to 5.9 gigawatt (GW), often a prelude to construction activity.
Nonetheless, risks persist as historical trends indicate that in two of the past three downturns, Big Tech's capital expenditure declined around 27 per cent year-on-year—though these dips were typically followed by sharp recoveries.
Further volatility could arise from possible tweaks to the upcoming AI Diffusion Rule, set to take effect by May 15.
With external conditions deteriorating and oil prices falling below 2025 Budget assumptions (US$75-US$80 per barrel), HLIB said the government may look to stimulate growth through domestic sectors like construction.
The sector boasts a gross domestic product multiplier of over two times, making it one of the most effective economic catalysts.
The firm noted that the government has pivoted towards incorporating private finance initiative (PFI) elements into railway projects such as Penang LRT STC package (RM3 billion) and request for proposal for the development of the Johor Bahru autonomous rapid transit (RM8 billion).
Additionally under 2025 Budget, projects worth RM9 billion is to be delivered under the PFI model.
"We reckon these projects could benefit from more rollout urgency. In this sustaining trend on private sector reliance for infra projects, we expect big-caps with sizeable balance sheet to thrive under such circumstances," the firm added.
