KUALA LUMPUR: Global markets have stayed largely composed despite the threat of renewed US tariffs – a resilience that could embolden former US President Donald Trump to intensify his protectionist push next month, said Hong Leong Investment Bank Bhd (HLIB).
While Malaysia currently faces a 25 per cent US tariff – above Indonesia's 19 per cent and Vietnam's 20 per cent – HLIB believes the gap is relatively minor and unlikely to trigger a major shift in foreign investment flows, describing the differential as "modest".
"Even if tariffs remain elevated, policy tools like tax incentives can cushion the impact, in our view. We are not overly alarmed.
"The differential of five to six per cent is modest and, in our opinion, unlikely to be material enough to meaningfully divert foreign investment," HLIB said in its latest market strategy note today.
Additionally, HLIB also noted that Malaysia's higher corporate tax rate of 24 per cent, compared to Indonesia's 22 per cent and Vietnam's 20 per cent, has not historically hindered its attractiveness to foreign investors.
"This is thanks to our mature and integrated manufacturing ecosystem, supported by a well-developed local supply chain.
"Thus, we believe these structural strengths will continue to make Malaysia an attractive destination under the global supply chain diversification," it added.
While HLIB expects the third quarter (Q3) to remain noisy due to macroeconomic and policy uncertainties, it projects calmer conditions in Q4.
"The FBM KLCI target is retained at 1,640, premised on a 14.5 times price-to-earnings ratio, which is below its five- to 10-year averages.
"We continue to envision the second half of 2025 to be a quarter of contrasts, where Q3 is characterised to be turbulent before entering into calmer skies in Q4. Thus, we see any sharp drop as an opportunity to buy on weakness, especially high beta stocks.
"Top picks include CIMB Group Holdings Bhd, Sunway Bhd, Gamuda Bhd, 99 Speed Mart Retail Holdings Bhd, AMMB Holdings Bhd, IOI Properties Group Bhd, Dialog Group Bhd, and SmartRent Inc," it said.
On domestic strategy, HLIB expects the upcoming 13th Malaysia Plan to align with ongoing Madani initiatives while allocating RM440 billion in development expenditure.
"That said, the development expenditure will be anchored by fiscal prudence to ensure adherence to the government's fiscal deficit target of 3.5 per cent gross domestic product between 2025 and 2027.
"Overall, we anticipate the 13MP to adopt a globalist approach, particularly given the significant overlap with Trump's presidency through 2028.
"Also, we expect a continuation of the whole-of-nation Madani ethos, with the 13MP reinforcing flagship policy anchors like the National Energy Transition Roadmap, New Industrial Master Plan 2030, and National Semiconductor Strategy," the firm added.