“It’s where you go when things are going badly elsewhere,” said Alexander Redman, chief equity strategist at CLSA in Singapore, who upgraded the market to neutral from underweight for as long as the war in Iran persists. “Malaysia’s in a relatively good position because it runs a current account surplus, is a net exporter of oil and gas, and the proportion of energy in Malaysia’s CPI basket is not as high as others.”
The rally in crude oil prices spurred by the Middle East conflict could boost revenues for Malaysia, which has offshore oil and gas resources in the Borneo states and Terengganu, even as other countries struggle with rising energy costs. Petroleum-related income is projected to account for 12.5% of government revenue in 2026.
That’s helped the country avoid the heavy outflows seen in other markets. Global funds sold about US$80 million ($102 million) in local shares on a net basis through March 13, while the FTSE Bursa Malaysia KLCI Index has lost only 1.2%. Foreign stock flows remained positive this quarter.
Malaysia’s economic initiatives are setting it apart from Southeast Asian peers. While Thailand and Indonesia contend with policy uncertainty, Prime Minister Anwar Ibrahim’s administration has rolled out plans to boost semiconductor industry spending and build manufacturing and renewable energy capabilities.
See also: Toh of CGSI stays ‘constructive’ but turns wary of Asian equities following US-Iran war
The strategy helped lift foreign direct investments to an all-time high last year. A record in total trade and tourist arrivals also pushed Malaysia’s growth ahead of most Southeast Asian peers in 2025, and the government is maintaining its forecast for this year.
Apart from its defensive qualities, Malaysia is “also in a growth mode,” said Tutiana Jusat, chief investment officer of Malaysia fixed income and head of global sukuk at Amundi in Kuala Lumpur, who is “constructive” on local debt. Companies have continued to expand and investor demand for corporate issuances has been encouraging, she said.
Banking stocks like Malayan Banking and consumer firms such as MR DIY Group (M), which may benefit from a robust economy, are among the best performers on the benchmark so far this year. Shares related to the oil and gas industry, including Petronas Chemicals Group and Petronas Dagangan, have also advanced.
See also: Screening for undervalued O&G companies
“A lot of people think that Malaysia is in a sweet spot right now,” said James Chin, professor of Asian studies at the University of Tasmania. Malaysia has a well- educated worker base and better infrastructure than most regional peers, he said.
Indonesia is struggling to restore investor confidence after rating agencies cut its outlook and MSCI Inc warned of a possible downgrade to frontier market status. Thailand is weighed down by high household debt and sluggish growth, while the Philippines is reeling from the impact of a public works corruption scandal.
To be clear, a prolonged war in Iran risks further outflows from emerging markets, including Malaysia. The country also faces a higher subsidy bill if oil prices remain elevated, which may weigh on plans to narrow its fiscal deficit. At the same time, allegations of collusion between businessmen and anti-graft officials may spook investors.
Still, Malaysia’s position in the global chip ecosystem will be of interest, said Tan Teng Boo, CEO and managing director of Capital Dynamics, who likes local tech firms, including Dufu Technology Corp. He expects the stock benchmark to rise to 2,500 to 3,000 within two years. The KLCI gauge closed at 1,696.56 on Monday.
Malaysia has carved out a niche in assembling, testing and packaging semiconductors, and plans to move into more valuable production, including designing its own chips. It is also a burgeoning destination for artificial intelligence data centres in the region, which is estimated to have contributed RM14.1 billion ($4.6 billion) to Malaysia’s economy in 2025.
Investments in its southern state of Johor, the country’s key data centre hub, have continued to gain momentum. The establishment of a joint special economic zone with Singapore may pave the way for more projects there.
These developments are helping underpin Malaysia’s investment case as funds seek a safe haven in times of stress.
“Investors are looking for ‘where can I feel better about my capital in the near term?’ and Malaysia is one of the markets that’s benefited from that,” said Harvey Bradley, co-head of global rates at Insight Investment. — Bloomberg
