KUALA LUMPUR (July 22): The second half of 2025 is expected to see a turbulent third quarter before stabilising in the last three months of the year, presenting buying opportunities — particularly in high-beta stocks — during market dips.
Despite external risks like potential US tariff actions, Hong Leong Investment Bank maintained its KLCI year-end target of 1,640 (14.5x PE/price-to-earnings ratio), as conditions are likely to improve by year-end.
The house also advised investors to watch out and buy on the dips for high-beta stocks like CIMB Group Holdings Bhd (KL:CIMB), Gamuda Bhd (KL:GAMUDA), and Dialog Group Bhd (KL:DIALOG).
“As expected, 3Q2025 is noisy and we still believe KLCI’s trajectory will be heavily influenced by external factors.”
“Although renewed tariff rhetoric has resurfaced, global equity prices have stayed relatively resilient, and overall market composure seems intact (which is arguably too calm); this prevailing stability may reflect a degree of complacency that suggest markets could be underpricing the risk of Trump following through with his latest tariff threats in August,” said HLIB in a note on Tuesday.
HLIB cautioned investors to tread carefully as 3Q is poised for turbulence, with early US economic softness — patchy inflation, retail sales, and labour data — raising risks of a pullback after the recent rally.
However, should markets react sharply to Trump’s trade threats, history suggests that he may temper his stance, offering a potential floor to volatility, it added.
At home, HLIB remains optimistic that Malaysia could still negotiate a more palatable tariff rate of below 20%, especially seeing both Indonesia and Vietnam had successfully secured steep reductions (13-26 percentage points/ppt), despite their respective ties to BRICS and China.
“Earlier, the narrative of Malaysia benefitting from tariff arbitrage held stronger weight due to a significantly wider gap of eight- to 22ppt during April’s Liberation Day episode. In contrast, the current disparity is far narrower. Even if Malaysia ends up with a relatively higher tariff rate, we believe it can be mitigated via strategic policy tools, including targeted tax incentives and capital allowances,” it added.
Meanwhile, Malaysia’s upcoming 13th Malaysia Plan, set for tabling in late July, is expected to allocate RM440 billion in development expenditure (DE), maintaining the RM90 billion/year trend, while adhering to a 3.5% fiscal deficit target (2025-2027).
The plan will likely emphasise global economic integration, aligning with Trump’s presidency, and prioritising initiatives like the National Energy Transition Roadmap (NETR), semiconductor strategy (NSS), and industrial masterplan (NIMP 2030).
Key focus sectors include semiconductors, green tech, electric vehicles (EVs), digital economy, biofuels, and rare earths, with construction (data centres), renewables, utilities, and power infrastructure as top beneficiaries, while plantations may see limited upside.