PETALING JAYA: Market analysts believe Bursa Malaysia’s benchmark FBM KLCI should remain steady in the near term on strong domestic support, even as Middle East tensions weigh on sentiment.
EquitiesTracker Holdings Bhd CEO and executive director Alvin Vong Chen Weng said further escalation in the Middle East conflict would be negative for overall market sentiment, particularly if it leads to a prolonged closure of the Strait of Hormuz.
Vong said companies with high exposure to fuel costs, especially those reliant on diesel domestically, would be among the hardest hit if the conflict drags on.
“My view is that the FBM KLCI in the short term may be quite insulated unless there’s a global sell-down across all markets, also in 2025, we saw foreign institutions being net sellers in our local market,“ he told SunBiz.
Logistics and airline companies are likely to be the most affected sectors, while defensive sectors such as telecommunications and banking may offer relative resilience, Vong said.,
Rakuten Trade Sdn Bhd vice-president of equity research Thong Pak Leng said US-Iran tensions would weigh on investor sentiment globally, with Malaysia not spared, although the impact would vary across sectors.
“In Malaysia, the broader market is likely to be affected, although the impact will vary across sectors. Upstream oil and gas as well as plantation stocks could benefit from higher commodity prices, particularly crude oil and palm oil. However, most other sectors may face cost pressures and volatility,“ he told SunBiz.
Economist Geoffrey Williams, in comments to SunBIz, said developments in the Middle East would affect financial markets, but the impact on the FBM KLCI is likely to be more muted given its largely domestic investor base.
“There is less than 20% foreign ownership of Bursa equities, but around 35% of trades involve foreigners. About 80% of Malaysian equities are held locally, mostly by GLICs such as EPF, which helps stabilise the market against external shocks.”
He added that while foreign investors may turn net sellers, some inflows could also emerge if Bursa Malaysia is seen as a safe haven.
“The recent news of a five-day pause in US military action against Iran caused oil prices to fall 14%. This should help improve market sentiment if the pause holds,” Williams said.
BM&P Consult business and technology consultant Thavanesh Gopalan said stagflationary pressures could weigh on the broader market despite the index’s relative resilience.
“The FBM KLCI may remain supported by Petronas-linked stocks and plantations, but mid- and small-cap stocks are likely to come under pressure. The FBM KLCI will likely hover in a wide range (1,680–1,750) until the five-day pause expires. If strikes proceed, expect a sharp break below 1,650 as the global recession narrative takes over,“ he told SunBiz.
Yesterday, the FBM KLCI closed at 1,716.68, up 7.92 points or 0.46%, with 559 gainers, 523 losers and 488 counters unchanged. Volume stood at 2.82 billion shares, with a year-to-date return of 2.18%.
Speaking to SunBiz, IPPFA Sdn Bhd director of investment strategy and country economist Mohd Sedek Jantan said the local bourse tracked a broader regional rally as oil prices retreated sharply, easing immediate concerns over a supply shock.
He said Brent crude dropped more than 4% after reports of a possible US-drafted ceasefire proposal, and that move was enough to ease immediate concerns about a supply shock. “When oil comes off like this, it quickly feeds into lower inflation expectations and takes some pressure off global policy outlook, which in turn gives equities a bit more room to move higher.”
He noted that sentiment across Asia turned positive, with Hong Kong’s Hang Seng Index rising 2.8%, South Korea’s Kospi up 2.7%, and Japan’s Nikkei 225 and Topix gaining 1.4% and 2.1%, respectively.
Mohd Sedek said the rebound was driven by a shift in market expectations around the conflict, after the US delayed potential strikes on Iranian energy infrastructure, prompting investors to lean towards a more contained scenario.
This, he added, brought buyers back into financial and technology stocks across the region. However, he cautioned that the geopolitical situation remains uncertain.
“While there are reports of diplomatic channels being explored, Iran has denied any formal talks, and there is still no credible signal that a peace process is under way. Markets are reacting more to the possibility of de-escalation rather than any confirmed breakthrough,“ he said.
From a macro perspective, Mohd Sedek said the recent market movement reflects a pullback in the geopolitical risk premium rather than a fundamental improvement.
“Oil is still flowing through the Strait of Hormuz, suggesting disruption risks are being managed but not eliminated. As such, markets remain highly headline-driven, and any shift in oil prices or geopolitical developments could quickly change the tone,“ he added.
