KUALA LUMPUR (Jan 9): Malaysia’s stock market will have little upside ahead following strong run-up even as economic growth remains intact, HSBC flagged on Thursday.

Valuations are not as appealing, especially when compared to elsewhere in Asean, HSBC said in a note. Malaysia’s growth story has also been fully taken into account as institutional funds have also stepped up their exposure to Malaysia since mid-2023 to a five-year high, the bank noted.

“This limits how much further they can go,” HSBC said and kept its rating for Malaysia at "neutral" with end-2025 FBM KLCI target of 1,850.

The benchmark index ended 2024 as one of the best-performing markets in Asia with a nearly 13% gain, thanks to robust corporate earnings, renewed foreign inflows, and optimism surrounding Malaysia’s economic growth trajectory.

The rally in 2024 sent KLCI’s valuations to 14 times the forward earnings, around its five-year average.

Equipment makers, chip designers, testers, construction companies, and power producers are benefitting from an inflow of foreign investment, HSBC said.

Malaysia is also well-positioned to benefit from the rise in data centres amid demand for cloud and artificial intelligence services and large tech companies are already investing heavily in the market, the bank said. “We believe utilities and industrials are best placed to benefit from this,” it added.

Malaysia is a key cog in the global tech supply chain, home to the facilities of some of the world’s largest electrical and electronic giants including Intel, NEC Corporation, and B Braun.

Several European and US companies have also recently decided to move to or expand their manufacturing facilities in the country amid ongoing trade tensions.