This article first appeared in Capital, The Edge Malaysia Weekly on April 13, 2026 - April 19, 2026

MARKET strategists are advocating a tactical approach to equities this quarter, as the Middle East conflict drags into its seventh week and continues to keep oil prices and global markets volatile.

Early last Wednesday (April 8), the US and Israel agreed to a two-week ceasefire, contingent on Iran reopening the Strait of Hormuz, a key global oil artery. The pause in hostilities was meant to allow them time to negotiate an end to the war, but barely 24 hours later, Israel launched its biggest attacks yet on Lebanon, prompting Iran to respond by striking oil facilities in other Gulf countries. This has raised questions as to whether planned negotiations between the US and Iran — the first of which was meant to happen on April 10 — would break down.

The conflict has already killed thousands, ruined key infrastructure and sparked an energy crisis worldwide.

The ceasefire announcement pushed the price of benchmark Brent crude below the US$100-a-barrel mark for the first time since March 23, and lifted global stock markets. Brent crude traded at about US$94 a barrel on April 8, down sharply from US$109.27 the previous day, but still 31% above the pre-war level of around US$72. At press time on April 9, it was trading higher at around US$98 a barrel.

At home, the stock market benchmark index, FBM KLCI, snapped a four-day losing streak on April 8, to add 19.45 points or 1.2% to 1,696.31 on the ceasefire news. A day later, it was down 0.59% to 1,686.24.

Against the backdrop of continued uncertainty, Peter Kong, head of research at Kenanga Research, advises taking a more vigilant stance in 2Q2026 — in other words, employ tactical play — given that corporate earnings expectations have yet to be adjusted for potential cost and inflation pressures.

Kong highlights three points for investors to consider in the second quarter, one of which is to be picky about cyclical stocks such as banks. “This may not be a consensus view, but we think banks face risks from both a [fund] flow and a fundamentals perspective,” he tells The Edge.

“From a flow standpoint, we’ve seen banks in peer countries like Indonesia come down by 12% in the first quarter, whereas in Thailand, they are down 3%; so, in that sense, Malaysian banks have already done well (up 2%). And, in the event the macroeconomic scenario plays out the way Kenanga expects — which is, for 2Q2026 to see peak pressure and pain [from the Middle East conflict] before normalising in 2H2026 to a lesser level — we are just a bit mindful about possible rotation across the banking sectors in Malaysia and the region.

“From a fundamentals perspective, with the banking sector’s loan loss coverage (excluding regulatory reserves) in the low-90%  based on average coverage, we see potential pressure for banks to build up some overlay on provisions, possibly as early as 2Q. So, it’s a timing issue — we’re not asking clients to sell banks, we’re just saying that there is a better time to accumulate them,” he explains.

Kenanga maintains an “overweight” stance on the banking sector, its top picks being CIMB Group Holdings Bhd (KL:CIMB) with a target price (TP) pegged at RM8.45 and Public Bank Bhd (KL:PBBANK), with a TP of RM5.75.

The second point Kong makes is to go defensive with dividend play. “What we have screened for at Kenanga are companies that would be able to meet investor expectations in terms of dividend yield, strictly from free cash flow,” he says.

Based on this, its dividend picks include Time dotCom Bhd (KL:TIMECOM), Sunway Construction Group Bhd (KL:SUNCON), Mr DIY Group (M) Bhd (KL:MRDIY), Public Bank, CIMB, Paramount Corp Bhd (KL:PARAMON), Dayang Enterprise Holdngs Bhd (KL:DAYANG), Sime Darby Bhd (KL:SIME) and PPB Group Bhd (KL:PPB).

The third point is to choose companies with a cost pass-through business model, as they are more resilient over the short term.  “As we expect no significant demand destruction — this is more of a supply-led challenge at the moment with regard to oil and the Strait of Hormuz chokepoint — we therefore take a view that business models matter, and those with a cost pass-through type of structure are more resilient. These include manufacturers of steel products, plastics packaging and gloves. We are slightly more cautious about construction players [as] they will have to absorb some cost near term,” Kong says.

From a sectoral standpoint, Kenanga likes the oil and gas (O&G) and plantations sectors. “These are the two sectors that we believe have a more short-term trading-related angle. For O&G, the earliest performers would be the downstream players and, as seen during the Ukraine war, this will then be followed by the upstream services players. So, we encourage investors with a longer-term horizon to also look into [the latter] to position themselves early.

“On planters, while there are some concerns at the moment about fertiliser cost increases, we believe this would be dwarfed by the impact from higher crude palm oil (CPO) prices. We have raised our CPO price estimate by RM150 to RM4,250 per tonne for 2026,” says Kong.

Kenanga’s O&G picks are Dayang, Uzma Bhd (KL:UZMA) and PETRONAS Chemicals Group Bhd (KL:PCHEM), while its plantation picks are Kuala Lumpur Kepong Bhd (KL:KLK) and PPB Group.

Kenanga sees oil prices averaging at US$80 a barrel this year, with 2Q levels expected to hover at US$100 or beyond before normalising in the second half of the year.

Areca Capital Sdn Bhd CEO Danny Wong Teck Meng too recommends tactical play in the second quarter, taking the view that the Middle East conflict will not escalate into a broader war across the region.

“There is still so much uncertainty, and this will continue until a peace agreement is achieved, so it’s about [making] a tactical move. You can buy defensive stocks — the dividend yielders, and at the same time also go for some of the stocks that were bashed down as a result of the conflict and are now oversold, that could have big potential when things settle. So, it’s a barbell investment strategy — you hedge on both sides [of the risk spectrum],” he tells The Edge.

Areca Capital, which manages close to RM5 billion of assets, likes the utilities and banking sectors. On the flip side, it is wary of export-oriented companies that are subject to foreign currency risk, and transport and transport-related companies that are affected by high oil prices.

Wong is of the view that oil prices are unlikely to trade above US$100 a barrel over the mid term. He notes that the war isn’t likely to last long as it would not be in the interest of US President Donald Trump, given the country’s mid-term elections in 4Q2026.

On the Malaysian stock market’s relative attractiveness to that in the region, he says: “If you’re looking purely at the FBM KLCI, it is at a fair level but not very attractive. However, in terms of foreign holdings, it is attractive because it is still below the 20% level, which is below average. If the ringgit stays resilient against the US dollar, foreign funds may come in and that may help sustain or push the index up slightly higher,” Wong opines.

The ringgit closed at 3.98 against the US dollar on April 9, firmer than 4.03 a week earlier.

Meanwhile, MBSB Research, in an April 9 report, recommends that investors explore laggard sectors given the improved sentiment following the ceasefire. “This is as long as there is no indication of a complete breakdown in negotiations between Iran and the US that could lead to renewed escalation,” it says. Among its top picks from laggard sectors are Gamuda Bhd (KL:GAMUDA), Mr DIY, Pavilion Real Estate Investment Trust (KL:PAVREIT), Mah Sing Group Bhd (KL:MAHSING), CelcomDigi Bhd (KL:CDB), Hong Leong Bank Bhd (KL:HLBANK) and Tasco Bhd (KL:TASCO).

Meanwhile, given the continued cloudy outlook, the research house also recommends that investors tactically seek cover among defensive stocks in case things turn for the worse. “While this stability, and attractive dividend yields, should moderate the downside risks, we are not discounting the potential for price appreciation due to undervaluation, as we have observed defensive sectors also being a bit of a laggard,” it says.

Some of its top picks, in addition to the laggard stocks mentioned earlier, are Leong Hup International Bhd (KL:LHI), Tenaga Nasional Bhd (KL:TENAGA), YTL Power International Bhd (KL:YTLPOWR) and AMMB Holdings Bhd (KL:AMBANK).

MBSB notes that foreign funds have not exited the Malaysian stock market in a meaningful way despite the conflict. “We saw only RM41.7 million of net foreign selling in March. As such, the net buying position remained for Malaysia for the first quarter, to the tune of RM1.18 billion,” it says, attributing it to the strong interest in commodity-linked and defensive sectors such as healthcare and real estate investment trusts last month.

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