Why Investors in the Malaysian Market Should Stay Optimistic Despite Recent Setbacks

February 4, 2025

  • Progressive government policies, rising domestic demand, and double-digit earnings growth are expected to drive Malaysia market expansion in 2025.
  • The KLCI could reach a value range of 1,840 to 2,100 points, showcasing substantial growth opportunities.
  • Investors should look past short-term market noise, like US policy changes, and focus on companies with strong long-term growth potential.

The Kuala Lumpur Composite Index (KLCI), which tracks the performance of Malaysia’s top 30 companies, had a rough start in 2025, falling 5.2% month-on-month to close at 1,556.92 points on January 31. This decline was due to concerns about US trade policies and potential tariffs, as well as the DeepSeek breakthrough, which especially impacted the construction, technology, and utilities sectors.

The KLCI had a great year in 2024, with its best performance since 2010, gaining 12.9%. The FBM100 Index, which tracks the top 100 companies on the Malaysian stock exchange, also rose by 16%.

Looking ahead, there are reasons for optimism. Progressive policy traction, improving domestic demand growth, and double-digit earnings growth can support a meaningful expansion in Malaysian market ratings in 2025.

Reasons for Optimism

  1. Supportive Policies: The Malaysian government is implementing policies that could help increase the market’s price-to-earnings (P/E) ratios. Our analysis suggests that the KLCI could be valued between 1,840 and 2,100 points, indicating strong growth potential.
  2. Economic Growth: Domestic demand grew from 4.5% in 2023 to over 6% in 2024, and the government expects this trend to continue. Malaysia is also strengthening key sectors like semiconductors, oil & gas, and Islamic finance.
  3. Earnings Growth: With a better currency outlook, we expect another year of double-digit earnings growth, following an estimated improvement from a slight decline in 2023 to a 14% increase last year.
  4. Minimal US Impact: The overall effect of US policy changes on Malaysia, such as restrictions on high-end US chip imports, is expected to be neutral.
  5. Attractive Valuations: Malaysian stocks are currently priced attractively compared to other markets, such as the MSCI Asia ex-Japan index and the S&P 500 index.

Risks and Challenges

  1. Global Volatility: The Malaysian stock market remains vulnerable to global economic uncertainties, including fluctuating commodity prices, interest rate policies in advanced economies, and geopolitical risks.
  2. Currency Fluctuations: As an export-oriented economy, changes in the ringgit’s value could impact earnings for export-driven sectors, especially technology and palm oil.
  3. Regulatory Environment: Investors will closely monitor regulatory developments, including tax policies and corporate governance reforms, which could influence market sentiment.

Investors should concentrate on the long-term prospects and not be swayed by short-term market noise. We advise investors not to get too caught up in the noise surrounding US policy changes and stay focused on companies with good long-term growth potential.

Reference
CGSI Note | Malaysia Strategy | January 20, 2025

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Hailey Chung

As a lifelong learner, Hailey strives to simplify finance for everyday investors, making it relatable and enjoyable. She desires to support investors with various background, whether they are grappling with limited time and resources in seeking financial freedom or are sincere in stewarding their money well as a token of gratitude for God's provision. With a focus on responsible investing, Hailey balances caution and opportunity, believing life's too short to stress over market fluctuations. Beyond the pursuit of profits, she advocates for investments aligned with building a better world. As Manager of Content at ProsperUs, she leverages her journalism background from The Edge Malaysia, where she honed her skills at the capital and corporate desk.

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