This article first appeared in The Edge Malaysia Weekly on March 24, 2025 - March 30, 2025

After years of disappointing performance, it finally felt like there was light at the end of the tunnel in 2024, says Tan Gan Leong, head of investments at KAF Investment Funds Bhd. Several award-winning fund managers share the sentiment, heaving a sigh of relief as the Malaysian stock market came roaring back last year, all while being cognisant that 2025 is a year fraught with uncertainties.

Gan Eng Peng, chief officer for equity at AHAM Asset Management Bhd, says 2024 was one of the best years in a decade for the FBM KLCI, thanks to the political stability that has allowed the government to execute its policies and businesses to undertake longer-term planning.

The rapid advancement and application of artificial intelligence (AI) have spurred economic growth and opened doors to new business opportunities across various sectors, says Chiang Kang Pey, CEO of Public Mutual Bhd.

As the year ended, the FBM KLCI was up 12.9% while the Malaysian economy had expanded by 5.1%. Approved private investments came in at an all-time high of RM378.5 billion, which will translate into corporate earnings in the coming years.

A number of award-winning fund managers at the LSEG Lipper Fund Awards 2025 churned out attractive returns last year by investing in companies poised to benefit from the influx of data centres investments, such as YTL Power International Bhd and YTL Corp Bhd.

The Johor-Singapore Special Economic Zone (JS-SEZ), which was recently established to enhance economic ties between Malaysia and Singapore, is another key investment theme that lifted the share prices of several construction and infrastructure companies.

Kenanga Investors Bhd (KIB) chief investment officer Lee Sook Yee and her team made the right calls on Gamuda Bhd and Sunway Bhd based on their thorough understanding of the two companies last year.

“Gamuda saw a rerating mainly on strong order book wins in regional and local markets while gaining exposure to the fast-growing data centre industry in Malaysia. Meanwhile, Sunway was rerated on the strong interest in its Iskandar Johor land bank, strong order book wins for its construction division and the value realisation of the upcoming listing of its healthcare division,” she says.

As the data centre and JS-SEZ themes dominated the market, there weren’t many opportunities for contrarian strategies in 2024, says Choo Swee Kee, chief investment officer and executive director at TA Investment Management Bhd (TAIM). But the firm executed a relatively contrarian play by investing in glove counters, including Hartalega Holdings Bhd and Top Glove Corp Bhd.

“After the sharp fall in glove stocks in 2022 and the removal of both companies from the FBM KLCI, many fund managers exited or pared down their holdings. We took the opportunity to add them to our portfolio progressively and benefited from the rotational interest in 2024,” he says.

Fund managers also identified individual companies that contributed to their win. KAF’s Tan spotted an opportunity in EG Industries Bhd, an electronics manufacturing services firm that successfully expanded its business amid the ongoing trade diversification taking place globally.

Lim Suet Ling, executive director and CEO of UOB Asset Management (UOBAM) Malaysia, observed that United Plantations Bhd had performed well due to its well-managed plantations and excellent capital management.

In terms of fixed income, Husain Zaman Kamarul Zaman, senior fixed income fund manager at Eastspring Investments Bhd, says long-tenured corporate bonds did well as excess liquidity in the market chased the limited bond supply. Corporate bond prices rose while interest rates fell as a result.

Mohamad Shafik Badaruddin, CEO of AmanahRaya Investment Management (ARIM) Sdn Bhd, says the firm invested heavily in higher-yielding investment-grade corporate bonds and sukuk early last year due to the favourable interest rate environment and improved economic conditions.

The consensus among fund managers is that 2025 will be a volatile year, largely due to the tariffs and trade policy of the US government under the leadership of President Donald Trump.

Investors were particularly spooked by Trump’s comment on March 9 during a recorded interview aired on the Sunday Morning Futures with Maria Bartiromo that he is not ruling out a recession in 2025.

As at March 11, the S&P 500 and Nasdaq were down 5.05% and 9.57% year to date respectively, while the FBM KLCI had declined 8.48%.

Trump’s tariff policy has a bearing on inflation in the US, which would affect the Federal Reserve’s monetary policy decisions and the prices of a broad range of financial assets.

“Investors are closely watching the Trump administration’s stance on trade, fiscal policy and immigration. The ‘America First’ philosophy could put pressure on countries with a significant trade surplus with the US, such as China,” says KIB’s Lee.

“On the monetary front, the Fed has paused interest rate hikes, with rate cuts now expected to be more gradual. The US federal funds rate could be lowered to 3.9% by end-2025.”

Christopher Leow, CEO and CIO of Principal Asset Management Singapore, says the inflationary impact of the higher tariffs is hard to predict. “Rate cuts are likely to be delayed until there is more visibility on how the tariffs affect inflation expectations,” he notes, adding that the tariffs could negatively impact US economic growth.

Yet, amid market swings and uncertainties, the award-winning fund managers do not exude a sense of pessimism in their written responses. While several have adopted a defensive strategy over the shorter term, partly by keeping a higher level of cash, they are actively eyeing bargain-hunting opportunities to reap long-term rewards.

Hang Tuah Amin Tajudin, chief investment officer at PMB Investment Bhd, says investment returns may come in lower than last year, but market corrections provide fund managers with openings to double down on good companies. “The year 2025 is not just about defence, it’s about smart positioning,” he adds.

Jason Chong, CEO of Manulife Investment Management (M) Bhd, resonates with such a view. “Volatile markets present opportunities to uncover hidden gems with attractive valuations that may have been overlooked by others,” he says.

Some say the Malaysian stock market that climbed 12.9% last year could have done better had it not been for the unwinding of the yen carry trade in August and fund managers taking profit in the second half of the year.

But this is only part of the story. The Malaysian market did not fare better as regional fund managers moved their money elsewhere for potentially better returns, especially China.

“Our market corrected towards 2H2024 as regional fund managers found better and faster alternatives in China. This trend appears to have continued into the beginning of 2025,” says AHAM’s Gan.

Fund managers have long shared differing views on China. Some favour Chinese equities because of their undemanding valuations, while others were concerned about the country’s structural economic challenges and preferred to invest in the US.

This year, the US and China markets continue to be primary areas of interest for fund managers, with the difference being more optimism over the Chinese market, making it the top investment destination for regional fund managers. So, perhaps it is not surprising that the Hang Seng Index had soared 20.93% at midday on March 12, while the CSI 300 Index was up 2.92%.

Eastspring’s Husain believes the US market still has legs, even after the S&P 500 delivered a spectacular 58% return in 2023 and 2024. “Some may be tempted to cash in their chips. But we believe that the US exceptionalism can go further and that 2025 will see growth and returns broaden out meaningfully,” he says.

“The US is to remain the global growth engine with business expansion, a healthy labour market, broadening of AI-related capital spending and prospect of stronger capital market and deal activity. In addition, the benefit of deregulations and a more business-friendly environment are likely underestimated.”

Public Mutual’s Chiang is “cautiously optimistic” about the US market. He says the US economy is expected to be supported by resilient consumer spending and a recovery in manufacturing activities. This is despite uncertainties surrounding the Fed’s monetary policy decision, potential policy changes under Trump and ongoing geopolitical risks.

“We are cautiously optimistic about the US stock market with corporate earnings supporting stock prices and potential for growth in sectors such as technology and healthcare, aided by the proliferation of AI across all sectors,” says Chiang.

He adds that China’s positive economic momentum this year will depend on the strength of its exports and the impact of the government’s stimulus measures in bolstering domestic consumption.

On the other hand, Areca Capital CEO Danny Wong favours China over the US as the equity valuations in the US are nearing two standard deviations above the historical average (such a view was shared in late February), which heightened the risk of profit-taking.

“Markets like China, Hong Kong and Malaysia are more attractive [by comparison]. They host companies that are poised to benefit from the leading AI theme and sustained demand for data centre infrastructure, particularly as DeepSeek’s open-source approach drives further investments [in AI],” he says.

Goh Wee Peng, CEO of AmFunds Management Bhd, favours Chinese internet and consumer counters as the emergence of DeepSeek AI increased investor optimism and confidence in China. The recent meeting between President Xi Jinping and private entrepreneurs also signifies China’s support for the private sector to spur economic growth.

Attractive opportunities can also be found among China’s state-owned enterprises (SOEs). “China SOE banks provide decent yields while property developers with stronger balance sheets are traded at huge discounts, providing us with good trading opportunities,” she says.

“We see the property market in China as stabilising, as the government has rolled out various aggressive measures to support the sector since the second half of last year.”

Syhiful Zamri, chief investment officer at Maybank Asset Management (MAM) Sdn Bhd, is also positive on China as he believes the country’s real economy won’t suffer as much from its trade war with the US.

In many cases, it is not an either or not situation. For instance, KIB’s Lee remains positive on US equities, particularly those in the tech sector, which is benefiting from the AI boom. She is also paying close attention to Chinese companies that are leaders in the electric vehicle and AI space through DeepSeek. “We are also constructive on tech stocks in Taiwan and South Korea, which are well positioned for the AI-driven future,” she says.

Eastspring’s Husain notes that the gap between the Taiwan market, the best performer in the region last year, and South Korea, the worst performer last year, was the largest since 2009.

According to the responses of the fund managers, the Malaysian stock market remains an attractive investment destination in a year of uncertainties in the light of positive corporate earnings and appealing valuations.

Several fund managers who invest locally are looking to put more money in companies that are mostly exposed to the domestic economy amid the ongoing global trade tensions.

“Our impression of the broad picture is that with de-globalisation and protectionism policy, the global economy will undergo a massive re-adjustment. Historically, most governments’ idea of driving [economic] growth has been focusing on production and exports. This year, we believe the government will need to shift its focus towards driving domestic consumption and fostering the regionalisation of trade to just sustain GDP (gross domestic product),” says TAIM’s Choo.

Chue Kwok Yan, CEO of Hong Leong Asset Management Bhd, agrees. “At the moment, companies that are more reliant on domestic demand should be more insulated from the ongoing trade tensions.”

Sectors that are favoured and repeatedly mentioned by fund managers include financial, healthcare, utility, construction, property and energy.

MAM’s Syhiful likes utility companies, particularly names in the grid infrastructure space that are gaining traction from the government’s push for cleaner electricity generation.

“We also like selected names in the construction and property space where we see valuation mismatch from their recovery and growth expectation. Specific beneficiaries from the data centre development, especially property developers and contractors, are also on our radar,” he says.

Interestingly, energy companies once avoided by institutional investors due to sustainability concerns seem to be moving back to centre stage. KAF’s Tan sees compelling opportunities in the energy sector as it remains significantly under-owned by local institutional investors.

“Many funds have minimal or no exposure to the sector, in part due to concerns about the long-term decline in oil demand. But we believe this perception overlooks the strong future demand for natural gas, the cleanest readily available fossil fuel and a crucial component of the global energy transition,” he says.

“Valuations in the sector remain attractive, with several companies trading at mid-single-digit price-earnings multiples, well below the low double-digit levels observed in previous cycles. Additionally, as balance sheets have strengthened, many of these companies have increased dividend payouts, enhancing their appeal to investors. Given the strong earnings momentum observed last year, we see substantial upside potential in these stocks and remain constructive on the sector’s outlook.”

Lee Chun Hong, chief investment officer at Principal Asset Management Bhd, says Malaysia is expected to continue benefiting from the trade diversion amid the ongoing US-China trade tensions. As global firms may shift operations to avoid tariffs, Malaysia could become a re-export hub, which will benefit the domestic electrical and electronics (E&E) sector.

Yet, investors need to watch out for a potential slowdown in China’s economy that could negatively impact the E&E sector. “The cyclical nature of the sector means that any downturn in demand from China could lead to reduced orders from Malaysian suppliers, affecting overall performance,” he says.

While most fund managers are not expecting to repeat last year’s performance, they are sanguine about generating decent returns this year, in line with corporate earnings growth.

“Markets and stocks ultimately follow actual earnings. At this juncture, the street is projecting 8% to 10% earnings growth this year, although recent [data] seems to point to some softness in this forecast,” says AHAM’s Gan.

“Our underlying economy appears robust and valuations remain attractive as earnings growth was pacing market growth in 2024. As time progresses, we think the market will be less volatile toward US policy shifts and this should allow the domestic market’s underlying strength to shine through.

“Domestically, we sense some market impatience with the progress of policy reforms, due to social balancing needs. Further delay in key reforms, like subsidy rationalisation, is a risk as it presents structural impedance to the growth of our country. 

“The key plan to our positive thesis is political stability. Policy continuation depends on it and any perceived change will challenge market sentiment severely.”

On fixed income, ARIM’s Mohamad Shafik favours Malaysian Government Securities (MGS) and Investment Issues (MGII) that offer steady and relatively higher yields than other developed markets. Nevertheless, the firm is actively looking out for better yields in the corporate bond space, especially those issued by financially sound businesses in the utility and infrastructure sectors.

“An issuer that has caught our attention is Tenaga Nasional Bhd, whose paper is appealing due to its stable cash flows and strong credit rating,” he says.

Ng Chze How, managing director and CEO of RHB Asset Management Bhd, says the firm sees compelling value in MGS and MGII due to improving fiscal dynamics and attractive valuations. “The government’s efforts to reduce the fiscal deficit and lower net bond issuances are expected to create a flatter yield curve, making government bonds an appealing investment,” he adds.

The firm is also selectively exploring opportunities in defensive sectors such as power, utility and financial, which offer stability against global trade volatility.

“We are maintaining a near fully invested position with an overweight allocation to corporate bonds. However, given that domestic corporate bonds’ valuations are currently somewhat stretched, we are taking a more selective approach,” says Ng.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.