All major sectors are in negative territory, except for real estate investment trusts (REITs) (see Chart 2). Manufacturing-related sectors, particularly glove manufacturers (under healthcare), semiconductor players (technology) and various firms within the industrial products and services sectors, have been among the hardest hit. On the other hand, sectors with relatively stable earnings — such as REITs, plantations, construction and financial services — have shown more resilience, performing comparatively better.
Tellingly, Bursa’s poor performance came about despite the relative outperformance of emerging markets in general as investors diversified away from US assets amid the inflationary impact of high tariffs, a weaker US dollar (USD) and growing worries over the country’s fiscal deficits and mounting federal government debts. The MSCI Emerging Market Index is up 14.1% for the year to date (YTD). Even after accounting for the 5.7% appreciation of the ringgit, the FBM KLCI would still register a 1.7% decline in USD terms over this same period. This being the case, we undertook another comprehensive analysis of Bursa-listed stocks to reassess the outlook for the second half of this year and whether any new opportunities have since emerged.
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The table shows an analysis of the percentage change in market capitalisation versus percentage changes in revenue and net profit for all major sectors between 2019 and 2024. To be sure, such point-to-point analysis will inevitably carry the inherent risks related to timing (cyclicality) for specific sectors. Nevertheless, it is a good-enough starting point.
Plantation: Resilient CPO prices and earnings plus yields
The one clear standout sector is plantation. The combined earnings of all plantation companies were up more than 350% in the last five years while stocks within the sector have largely traded sideways. In fact, the plantation index is currently 3.4% below its pre-pandemic average. In other words, plantation stocks have become much cheaper, on average. The robust earnings growth is driven primarily by elevated crude palm oil (CPO) prices. And while CPO prices are well off pandemic highs, they have stabilised around RM4,000 ($1,211) per tonne in the past three years — 65.7% above the pre-pandemic average of RM2,405 — a very profitable level for plantation companies. The sector’s earnings in the trailing 12 months (TTM) were 47.4% higher than the pre-pandemic average recorded between 2015 and 2019.
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Looking ahead, we expect CPO prices to stay near current levels, supported by stable aggregate inventories of major vegetable oils. Since 2019, global vegetable oil inventories have remained relatively flat, even as consumption has risen by 9.9%. The tight supply is partly due to declining crop yields (see Chart 3) — caused by adverse weather conditions — and a lack of replanting over the past decade, when commodity prices were generally depressed. Sustained high palm oil prices provide strong earnings visibility for the plantation sector. For this reason, we have kept our investments in two plantation companies — United Plantations and Kim Loong Resources. The former has performed very well, although the latter’s stock price has been somewhat flattish. Nevertheless, both offer attractive dividend yields, with Kim Loong’s TTM yield at 6.7% and United Plantations’ yield at 5.2%.
Financial services: Attractive yields with relatively stable earnings
Another sector offering attractive yields is financial services. Banking stocks have generally delivered steady single-digit earnings growth in recent years and valuations are becoming more attractive as their share price gains lagged. Case in point: The sector’s earnings grew 8.5% year on year in 1Q2025, but share prices declined 7.5% on average YTD.
To be sure, the recent downward revision in GDP growth is expected to weigh on loans growth for the banking sector. In fact, loans growth has already slowed — from 6.4% in July 2024 to 4.5% in May 2025. Nevertheless, impaired loans have remained stable. The recent interest rate cut by Bank Negara Malaysia could lead to some net interest margin compression. But overall earnings are expected to remain relatively stable, especially compared to many other sectors, such as gloves, tech and property.
Exporters: Margins pressured by US tariffs, stronger ringgit and Chinese competition
Among the best performers in 2024, the healthcare sector has emerged as the worst-performing YTD. This sharp reversal is attributable to a sell-off in glove manufacturers.
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In 4Q2024, glove stocks rallied, following the announcement of sharply higher US tariffs — 50% in 2025, before rising further to 100% in 2026 — on medical glove imports from China. This development initially boosted market sentiment on Malaysian glove makers, which were seen as potential beneficiaries poised to recapture market share from China. But the optimism proved short-lived. Despite the tariff advantage, global average selling prices for gloves remained subdued, owing to heightened competition in non-US markets.
Meanwhile, Chinese manufacturers continued to expand production outside the country to bypass the tariffs, undermining the competitive edge that Malaysian producers hoped to regain. Adding to the challenges, US buyers front-loaded glove purchases ahead of the tariff hikes, leading to a decline in sales volume for Malaysian glove makers in 1Q2025. At the same time, the strengthening of the ringgit further compressed margins for these export-dependent companies. These compounding factors disappointed investors who had piled into glove stocks during the late-2024 rally, resulting in a broad-based sell-off across the sector.
Aside from glove makers, the strengthening ringgit, combined with rising global trade uncertainties and the slower economic growth, has also weighed heavily on the outlook for all domestic manufacturers and exporters. Malaysia has just received the “letter” from US President Donald Trump whereby all our exports to the US will face 25% tariffs come Aug 1, 1% higher than the original 24% “Liberation Day” rate. In the most recent round of announcements, the minimum tariffs were 25%, including for Japan and South Korea, rising as high as 40% for Laos and Myanmar. Vietnam had a few days earlier agreed to a trade framework with the US that saw its tariffs reduced to 20%, with a higher 40% levy on transshipments.
Clearly, substantially higher US tariffs are now the new norm. Exporting countries will need to adjust accordingly, in terms of their own supply chains, pricing as well as destination markets. This will lead to trade disruptions that we believe will end up raising overall costs for consumers in the near-medium term. The US tariff costs will be shared among exporters, US companies and consumers. Malaysian manufacturers will most likely have to absorb part of the costs, with the extent depending on the elasticity of supply and demand for their products.
At the same time, Malaysian manufacturers are expected to face stiffer competition from Chinese players in other markets, as the latter redirect their shipments previously targeted at the US market. For example, China’s exports to the US fell 34.5% y-o-y in May, while exports to the European Union and Asean rose 12% and 14.8% respectively.
Tariffs and the resulting trade disruptions will lead to a broader global economic slowdown. The World Bank revised its 2025 global growth forecast down from 2.7% in January to 2.3% in June. Taken together, all these developments point to growing margin pressures for manufacturers — which we believe will get progressively worse over the coming months before getting better, perhaps later in 2026. Therefore, it is unsurprising that the technology and industrial products and services sectors have emerged as the second- and third-worst performing sectors on Bursa YTD.
Technology: Falling earnings plus valuation compression
What of the tech sector? Globally, massive investments are being poured into artificial intelligence, with rapid advancements being made in generative AI, agentic AI and embodied AI, underpinned by rising adoption by enterprises. Bursa’s technology index, which comprises primarily companies providing services and equipment to the semiconductor industry, has plunged 48.7% from its 2021 peak (see Chart 4). This is due in part to the abnormal surge in demand and earnings during the Covid-19 pandemic — fuelled by generous government stimulus and limited consumer spending options as well as inventory buildup on lockdown-related supply disruption fears. In short, the earnings boom was temporary. As consumer demand normalised and companies started reducing their stockpiles, the sector’s earnings began to decline in late 2022 — and have yet to recover.
While global semiconductor sales have been rising over the past two years, growth has been concentrated on AI-related applications. Most local semiconductor firms, which are more focused on smartphones, automotive, consumer electronics and industrial applications, have not significantly benefited from this trend.
During the pandemic, the sector’s price-earnings (PE) ratio surged to 54 times — double the pre-pandemic average of 27 times (from 2017 to 2019). As earnings fell, this elevated valuation began to also compress, contributing to the steep correction in share prices. Currently trading at around 33 times PE, the sector’s valuation is closer to its historical norm — but the demand outlook for durable goods such as vehicles and consumer electronics remains weak amid a slowing global economy. Demand may be even slower heading towards the year-end, owing to forward purchasing to take advantage of lower tariffs. This poses more downside risk to earnings in the near-medium term. Our tech companies are also down the value chain, with no or little pricing power. There is no reason for the sector’s premium valuations. Surely 33 times earnings multiples for these companies are a comparatively much higher valuation than, say, the current 38 times forward PE for Nvidia. As such, the risk-reward profile of the technology sector remains unattractive at this point.
Property: Weakening demand and home prices
The property sector also performed poorly this year, declining 11.7% YTD — a sharp reversal from the 31.5% gain recorded in 2024. The falling stock prices reflect growing signs of weakness in the Malaysian residential property market. In 1Q2025, the total number of residential property transactions fell 5.6% y-o-y. Among the major states and federal territories, Selangor (-12%), Kuala Lumpur (-6.9%) and Penang (-0.2%) registered y-o-y declines, with Johor being the only exception, recording a 3.6% increase in transactions (see Chart 5).
This drop in sales was accompanied by a broad correction in property prices. The Malaysia House Price Index fell 2.5% quarter on quarter in 1Q2025, the steepest quarterly decline in a decade. All key states saw price contractions — Kuala Lumpur (-4.9%), Johor (-3.9%), Selangor (-2%) and Penang (-1.2%).
The combination of lower transaction volumes and falling prices casts doubt on the sustainability of the sector’s recovery. Johor remains the only bright spot, supported by optimism surrounding the upcoming Rapid Transit System (RTS) Link and the Johor-Singapore Special Economic Zone, both of which are expected to bolster property demand in the state.
In contrast, the outlook for the Klang Valley is subdued, owing to a persistent increase in housing starts and a lack of significant demand catalysts. For instance, housing starts have clearly risen in Penang, but the corresponding demand growth from increased employment in the electrical and electronics sector is likely to take much longer to materialise. We will write a more in-depth analysis on Malaysia’s property sector in the near future.
Construction and utilities: Lofty expectations driven by data centres
The slowdown in the property sector will have spillover effects on the construction sector. Construction stocks have been the biggest winners over the last five-year period, with share price gains far outpacing actual revenue and net profit improvements. In other words, the gains were driven by expectations and likely speculation, fuelled by the excitement surrounding AI and positive news flows on data centres.
The sector index gained 60.7% in 2024 alone, owing largely to the surge in data centre construction projects. Last year, Malaysia approved RM163.6 billion in digital investments, with 76.8% (RM125.6 billion) allocated to data centres and cloud infrastructure. This momentum appears to have slowed in the first four months of 2025, however, with approved digital investments totalling just RM16.2 billion, of which only RM9.9 billion was directed towards data centre and cloud projects. Sentiment was also hurt by ongoing investigations and the possibility of US restrictions on the sale of high-end Nvidia chips to the country, as a transshipment point to China. Last week, the Ministry of Investment, Trade and Industry (Miti) announced that permits would now be required for all high-performance AI chips entering or leaving Malaysia that originate from the US.
To be clear, much of the digital investments approved in 2024 are under construction and construction companies are still expected to see earnings growth in the near term. If data centre investments continue to soften, however, construction order books could begin to shrink, potentially leading to a decline in earnings further down the line — especially given prevailing weakness in the residential property market.
Importantly, sector valuations — currently trading at a PE ratio of 28.5 times — are significantly above pre-pandemic averages of below 20 times.
This raises the risk that construction stocks could suffer a fate similar to the tech sector’s, should earnings begin to falter and/or fall short of the lofty expectations currently priced into stock prices.
The slowdown in data centre investment momentum has also weighed on the utilities sector, which was the second-best performing sector last year. Sentiment then was boosted by expectations of increased energy demand from data centres. The sector has since suffered a 9.8% decline in share prices YTD.
Adding Maybank, HLI and LPI to the Malaysian Portfolio
As we explained in a recent article (“Economic slowdown inevitable — US-world diverge in inflation, interest rates and equity valuations”, The Edge, July 7, 2025), a global economic slowdown is inevitable. Malaysia is an open economy highly reliant on trade. US tariffs will negatively affect exporter earnings; the only question is how the costs will be shared and, therefore, the extent of the impact on margins. Demand outlook will be further affected by the expected intensifying competitive pressure amid a weaker global economy. Given the mounting downside risks to economic growth, Bank Negara made its first interest rate cut in two years in early July, both as a stimulus to support the economy and to prevent the ringgit from strengthening further, as other nations, too, have started to loosen monetary policies.
In view of the prevailing weaker global and domestic economic growth outlook, our defensive portfolio strategy is prudent. The outlook across all major sectors of the economy is challenging, as we have discussed in this article. We favour companies with high earnings visibility, reasonable valuations and, preferably, attractive dividend yields. High-yielding stocks are a good option as savings rates fall, which is one reason that REITs are outperforming. After our thorough assessment, we added three stocks that fit our profile — Malayan Banking (Maybank), LPI Capital and Hong Leong Industries — to the Malaysian Portfolio. With these latest additions, our cash is now pared to 48.6%.
Maybank’s gross impaired loan ratio of 1.3% is below the industry average, and its return on equity (ROE) of 11% is above average. Coupled with a dividend yield of 6.2%, the bank — incidentally the largest listed company on Bursa by market cap — offers investors a compelling combination of solid operational performance and attractive valuations.
LPI Capital’s general insurance business — mainly fire and motor insurance — should continue to generate stable earnings. The company paid a decent TTM dividend yield of 5.4%. There is also an impending special dividend of around 11% to be distributed upon the successful disposal of its 1.1% stake in its parent company, Public Bank. The disposal must be completed by December 2025, and the special dividend will be distributed within 18 months upon receiving the proceeds.
Hong Leong Industries, which primarily manufactures, assembles and distributes Yamaha-brand motorcycles, scooters and related parts in Malaysia, is benefiting from the strong tailwind of increased motorcycle sales this year. In the third quarter of its FY ended June 30, 2025, the company’s core profit before tax rose 21.4% y-o-y, in line with a 7.7% y-o-y increase in newly registered motorcycles in Malaysia. This positive momentum continued into April and May, with registrations rising 10.8% y-o-y (see Chart 6). Hong Leong Industries’ share price has held steady amid the broader market decline this year. Valuations are attractive, with a PE ratio of less than 10 times and TTM dividend yield of 5.9%. Notably, net cash accounts for roughly half of its current market cap, giving the stock a substantial buffer against downside risks.
To be clear, this is a Malaysian Portfolio, comprising only Bursa-listed companies — and our investment decisions are guided by this parameter. As we have written in previous articles, our view remains that over the longer term, it is US and Chinese stocks that will perform better. For the week ended July 16, the portfolio fell 0.1%, faring better than the benchmark FBM KLCI’s 1.2% decline. Kim Loong Resources (+4.4%) and United Plantations (+0.2%) were the two gainers for the week. Our new acquisitions — Malayan Banking (-2.1%), Hong Leong Industries (-1.9%) and LPI Capital (-0.8%) — all finished lower. Total portfolio returns now stand at 182.8% since inception. This portfolio is outperforming the benchmark index, which is down 17.4% over the same period, by a long, long way.
The Absolute Returns Portfolio, on the other hand, gained 0.9% in the past week, lifting total portfolio returns to 28.1% since inception. The top three gaining stocks were Alibaba Group Holding (+10.6%), ChinaAMC Hang Seng Biotech ETF (+7.1%) and Trip.com (+4.1%). CrowdStrike Holdings (-8.4%) and Berkshire Hathaway (-1.6%) were the only two losing stocks in the portfolio.
Meanwhile, the AI Portfolio was down 0.4% for the week. Total portfolio returns now stand at -0.2% since inception. The biggest gainers were Alibaba, RoboSense Technology (+4.0%) and Horizon Robotics (+3.9%) and the top losers included Workday (-5.6%), ServiceNow (-4.6%) and Cadence Design Systems (-2.6%).
Disclaimer: This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks, including the particular stocks mentioned herein. It does not take into account an individual investor’s particular financial situation, investment objectives, investment horizon, risk profile and/or risk preference. Our shareholders, directors and employees may have positions in or may be materially interested in any of the stocks. We may also have or have had dealings with or may provide or have provided content services to the companies mentioned in the reports.
