KUALA LUMPUR (March 14): Malaysia’s stock market valuation remains attractive despite global economic uncertainties stemming from escalating trade tensions and US tariff threats, said Rakuten Trade Sdn Bhd head of research Kenny Yee Shen Pin.

Speaking at Rakuten’s virtual media briefing on the second-quarter market outlook, Yee noted that excessive speculation and policy decisions under US President Donald Trump have led to an overvalued US market, leading investors to seek better-valued opportunities in Asia.

"We have observed selling pressure in the (Malaysian stock) market (recently), but in this environment, we advocate (investors) accumulating stocks, particularly blue chips. Let’s not be too pessimistic about the local market, there is light at the end of the tunnel," Yee said.

“Further, we have observed foreign funds gradually returning to Asia, with Hong Kong being the primary beneficiary. As a knee-jerk reaction, foreign investors have reduced their holdings in Southeast Asia, including Malaysia, in favour of Hong Kong. However, we expect spillover effects to benefit the Southeast Asian region in due course,” he said.

Yee anticipates that fund realignment will continue, with valuations playing a key role amid a risk-off investment environment. “Funds will eventually gravitate back to markets with reasonable valuations, particularly within Asean,” he added.

As such, Rakuten maintained its FBM KLCI target at 1,730 for this year, based on a 16-times price-to-earnings ratio (PER) for the 2025 calendar year. As of midday break on Friday, the benchmark FBM KLCI rebounded to 1,513.38, from a morning-session low of 1,493.29.

On the ringgit, Yee said the local currency is undergoing recalibration and is expected to trade within the 4.20 to 4.30 range by year-end, supported by US recessionary concerns that may prompt a Federal Reserve rate cut.

Rakuten maintains an "overweight" stance on banking, construction, healthcare, oil and gas (O&G), plantation, power and utilities, technology, and telecommunications.

The banking sector remains attractive, with loan growth projected at 6.0% in 2025 and net interest margins between 2.0%-2.5%. Rakuten favours CIMB Holdings Bhd (KL:CIMB) for its dividend yield, while Hong Leong Bank Bhd (KL:HLBANK), AMMB Holdings Bhd (KL:AMBANK), Malayan Banking Bhd (KL:MAYBANK)  and RHB Bank Bhd (KL:RHBBANK) offer strong upside potential.

Construction is set to remain robust, driven by over RM180 billion in infrastructure projects, including the Penang LRT Mutiara Line, Pan Borneo Highway Phase 2, Subang Airport redevelopment, and the Johor-Singapore Special Economic Zone (JS-SEZ). Gamuda Bhd (KL:GAMUDA) and IJM Corp Bhd (KL:IJM) are Rakuten’s top picks in the sector. 

The glove sector is poised to gain from an ongoing earnings recovery and US tariffs on Chinese manufacturers, while private hospital operators stand to benefit from rising healthcare demand. Rakuten favours Hartalega Holdings Bhd (KL:HARTA), Kossan Rubber Industries Bhd (KL:KOSSAN), and IHH Healthcare Bhd (KL:IHH).

In the O&G sector, Brent crude is forecasted at US$70-US$75 per barrel in the first half of 2025 (1H2025), with Petroliam Nasional Bhd’s (Petronas) capital expenditure cuts expected to be less severe. The firm prefers Yinson Holdings Bhd (KL:YINSON) and Bumi Armada Bhd (KL:ARMADA).

The plantation stocks, meanwhile, could benefit from the tightening global palm oil supply, rising biodiesel demand, and adverse weather conditions, according to Rakuten, with Johor Plantations Group Bhd (KL:JPG) and Genting Plantations Bhd (KL:GENP) as top picks.

In power and utilities, Rakuten said Tenaga Nasional Bhd (KL:TENAGA) and YTL Power International Bhd (KL:YTLPOWR) are expected to gain from data-centre expansion and increased renewable energy adoption. Technology players Inari Amertron Bhd (KL:INARI) and PIE Industrial Bhd (KL:PIE), on the other hand, are poised to benefit from demand for advanced semiconductor packaging and testing.

Rakuten remains positive on the telco sector, citing stable mobile average revenue per user and strong fixed-line demand, backed by US$16.5 billion in global investments in Malaysia’s data centre, cloud, and artificial intelligence (AI) ecosystem. Rakuten’s top picks include Maxis Bhd (KL:MAXIS) and Celcom Digi Bhd (KL:CDB).