KUALA LUMPUR (March 14): Malaysian stocks turned positive after opening lower on Friday, boosted by gains across most Asian markets following news of a potential bipartisan support to avert a US government shutdown.

The FBM KLCI eked out a 0.2% gain at 1513.38 by midday trading break, after falling over 1% earlier in the morning. YTL Corporation Bhd (KL:YTL) rose more than 4% to RM1.90 to lead gainers among index component stocks.

Most sectors also recovered, led by technology as Vitrox Corporation Bhd (KL:VITROX) climbed 6.2% to RM2.75. Real estate investment trusts and telecom-and-media sectors however remained in negative territory.

CIMB Securities believes there is limited remaining foreign selling, as most foreign inflows from 2024 have exited, with foreign ownership at record lows.  

It posits that only a severe shock could trigger outright foreign capitulation, as seen during the Covid-19 crisis.

The firm estimates about 28% of foreign ownership in the KLCI is strategic, with future outflows likely from non-strategic investors.

“Every 2% reduction in non-strategic foreign holdings is expected to lower overall foreign ownership by one percentage point, with each percentage point drop equating to about RM18 billion in equity sell-down,” it noted.

That said, CIMB Securities believes that Malaysian equities are ripe for bargain hunting, given the low level of foreign shareholding and attractive price-earnings (P/E) valuations.

CIMB Securities thinks the low foreign holdings suggest that even marginal foreign inflows or the cessation of selling could spark a short-term market rally.

The research firm's strategy report highlighted that the FBM KLCI is currently trading at a forward P/E of 13.9 times, slightly below its five-year average P/E of 14.3 times, indicating an undemanding valuation.

Additionally, foreign ownership troughs, like in 2023, often coincide with market troughs, as selling pressure eases and valuations turn attractive to local investors.

It noted that historically, such low valuations have signalled limited downside risk and presented opportunities for long-term investors to accumulate quality stocks. 

In previous selloffs, when the KLCI's P/E ratio dropped to 12–13 times, representing one- to two standard deviations below the mean, and dividend yields rose correspondingly, bargain hunters emerged.

As at end-February 2025, foreign shareholding in Malaysian equities stood at 19.6%, near the record low of 19.4% registered in January 2025. 

Following a brief period of RM5.4 billion in net foreign inflows between July 2023 and September 2024, the trend reversed in late 2024. Foreign selling has since focused on thematic plays linked to the National Energy Transition Roadmap (NETR) and data centres, with the most outflows in the utilities (31%), finance (30%), consumer (10%), transport (7%), and healthcare (6%) sectors.

Going forward, CIMB Securities believes that catalysts for a market rebound could include easing trade tensions, strengthening of the ringgit, better-than-expected corporate earnings, and government initiatives to boost stock market performance.

However, given the uncertainty surrounding US tariff policies — with an announcement expected on April 2 relating to “reciprocal tariffs” — it expects investors to remain defensive and likely in risk-off mode.

Its current top picks are Genting Malaysia Bhd (KL:GENM) (8.4% dividend yield), Sime Darby Bhd (KL:SIME) (7.3%), Gamuda Bhd (KL:GAMUDA) (5.7%), Malayan Banking Bhd (KL:MAYBANK)(6.3%), and RHB Bank Bhd (KL:RHBBANK)(5.6%).

Meanwhile, Public Investment Bank (Public IB) highlighted that Malaysia faces a relatively low risk of being targeted by Trump’s tariffs, given the relatively low tariffs differential compared to peers such as South Korea, India, Thailand and the Philippines.

However, the firm maintains a cautious outlook on Malaysian equities, advocating a trading-oriented strategy that emphasises a bottom-up approach, and buying on dips to capitalise on market weaknesses.

Based on its analysis, the current downcycle, which began in August 2024, could extend until the third quarter of 2025, if historical trends hold. Past market downturns have typically lasted between 11 and 14 months.

In terms of sector preferences, Public IB favours companies with strong exposure to domestically driven growth, particularly in the consumer, construction, and utilities sectors. Its top picks are Telekom Malaysian Bhd (KL:TM), Tenaga Nasional Bhd (KL:TENAGA), Gamuda Bhd (K::GAMUDA), CIMB Group Holdings Bhd (KL:CIMB), CCK Consolidated Holdings Bhd (KL:CCK), Cloudpoint Technology Bhd (KL:CLOUDPT) and Focus Point Holdings Bhd (KL:FOCUSP).