KUALA LUMPUR (July 1): HSBC Private Bank has maintained its 2026 economic growth forecast for Malaysia at 4.5% and expects a 4.7% growth in 2027, saying the country's role in the artificial intelligence (AI) supply chain and continued data centre investments shield the economy from macro headwinds amid the Middle East crisis.

"Malaysia's powerful semiconductor testing and assembly infrastructure is feeding into the regional AI trade," said HSBC Private Bank and Premier Wealth chief investment officer for Asia Desmond Kuang during HSBC's third-quarter investment outlook briefing on Wednesday.

Kuang said HSBC Private Bank is maintaining its growth forecast for Malaysia even as it downgraded the outlook for several regional peers, citing its exposure to the global AI trade.

Echoing a similar view, HSBC Private Bank and Premier Wealth global chief investment officer Willem Sels said Malaysia has remained relatively resilient amid the Middle East conflict, supported by its status as a net oil exporter and growing exposure to the AI supply chain.

"We see Malaysia here as a net exporter of oil, obviously therefore much less sensitive to everything that has been going on in the Middle East and therefore, together with the AI exposure that Malaysia has, has weathered the conflict quite well,” said Sels.

Kuang said Malaysia's recent strength in exports reflects the country's growing role in the AI hardware supply chain. While AI-related trade could be volatile, he said demand for AI hardware would be firm.

"The entire AI hardware trade from Southeast Asia supplying to North Asia, and then the entire Asia supplying to the world, we don't see that changing anytime soon, which will be a key anchor to Malaysian exports," he said.

Kuang added that HSBC Private Bank's growth forecasts for Malaysia had already factored in the strong export performance and the ongoing data centre construction cycle.

"Malaysia will continue to lead in the regional data centre market in the coming years. So that will be a key support for the economy," he said.

Kuang said HSBC Private Bank had raised its 2026 inflation forecast for Malaysia to 2.5% from 2.1%. But with its economy remaining more resilient than its regional peers, the inflation is "rather tempered" compared to peers. Hence, the increase is not expected to prompt Bank Negara Malaysia to raise interest rates.  

On equities, Kuang said HSBC Private Bank’s year-end target for the FBM KLCI is 1,850 points, up 11.7% compared with 1,656.83 at Wednesday's market close.

Kuang said the upside will be premised on stronger corporate earnings prospects. "Most of the upside from here would probably come from earnings or the organic growth of the bottom line of the companies."

He said energy companies remain a key earnings driver, benefiting from higher oil and chemical prices, while AI-related investments are expected to lift corporate productivity and profitability across the board.

Separately, Kuang said a more hawkish US Federal Reserve (Fed) could provide support for the US dollar, potentially tempering foreign appetite for emerging markets and currencies, including Malaysian equities.

“Obviously, what we have to watch is the dynamics between the foreign exchange rate and also foreign capital. We have yet to see meaningful inflow year to date from foreign allocation into the Malaysian market.

"The Fed is now appearing to be more hawkish than the first half [of this year] and that would have an impact on foreign capital consideration on the appeal of the Malaysian market,” he said.

The bank has forecast the ringgit to trade at 4.15 against the greenback for 2026. The Malaysian currency has fallen over 5% from its recent peak of 3.88 in February and currently trades at 4.09 against the US dollar.

Turning to crude oil, HSBC Private Bank expects prices to remain above US$70 per barrel, supported by lingering geopolitical risks and the replenishment of inventories by major economies.

Sels said  oil prices should remain broadly stable over the next six to 12 months, as investors continue to price in geopolitical risks.

"We have had a number of U-turns in the Strait of Hormuz situation. People still see some risk there as well, so I don't think that we should expect much more downside to oil prices. Our forecast is relatively flat between here and six to 12 months from now," he said.

Kuang added that higher oil prices are a double-edged sword for Malaysia as they support energy companies but also increase the fiscal burden of keeping domestic fuel prices affordable.

"As long as the prices are reasonable in the current range, which is our forecast, then obviously the risk is more balanced towards the end," he said.

The Brent crude oil price has retreated from its peak of US$120 per barrel in April, curently trading at US$72.13.