Investors are increasingly shifting their focus from isolated geopolitical events to the broader economic impact of higher energy prices, shipping disruptions and escalating trade tensions, with MBSB Research warning that these factors could keep inflation elevated and interest rates higher for longer.
In its latest market outlook, the research house said financial markets are now grappling with two major sources of uncertainty: the escalating conflict in the Middle East and a fresh wave of US tariffs introduced under Section 301, both of which are reshaping the global investment landscape.
While the Strait of Hormuz remains open, MBSB noted that vessel traffic has slowed significantly amid ongoing US-Iran hostilities, while renewed attacks on oil tankers in the Red Sea have heightened risks along another critical shipping route.
The disruptions have pushed Brent crude prices back above US$100 per barrel, raising concerns that higher shipping costs, insurance premiums and longer delivery times could fuel another wave of global inflation.
“The issue for markets is no longer whether a major shipping chokepoint is completely closed, but whether slower trade flows and rising logistics costs create renewed inflationary pressures,” the research house said.
Tariffs becoming a permanent feature
Beyond geopolitical risks, MBSB said the United States’ latest tariff measures signal that protectionist trade policies are becoming a structural feature rather than temporary negotiating tools.
The report said the new tariffs are expected to increase scrutiny over rules of origin, transshipment practices, forced labour standards and supply-chain transparency.
For Malaysia, the direct impact is likely to be felt through inflation expectations, higher production costs, ringgit volatility, foreign investment flows and the US Federal Reserve’s monetary policy outlook.
MBSB said the combination of higher oil prices and tariffs could leave the Fed with limited room to ease interest rates, as both developments contribute to inflation through different channels.
“The Iran conflict raises oil, freight and insurance costs, while tariffs increase import costs and disrupt supply chains. Together, they reinforce the risk of higher-for-longer interest rates,” it said.
Risks and opportunities
Despite the challenging external environment, MBSB believes Malaysia remains well positioned to benefit from ongoing supply-chain diversification, particularly in electronics and electrical (E&E) manufacturing, semiconductor assembly, data infrastructure and selected industrial investments.
However, it cautioned that Malaysian exporters will face greater scrutiny over supply-chain integrity and compliance with international trade standards.
Companies with transparent sourcing, sound governance and genuine value-added manufacturing are expected to be better positioned to benefit from shifting global supply chains.
The research house also warned that the ringgit will remain one of the primary transmission channels for global uncertainty.
While a weaker currency may support exporters, it would raise costs for importers, retailers, manufacturers reliant on imported inputs and companies with foreign currency liabilities.
Foreign investor participation is also likely to remain cautious until there is greater confidence that the ringgit has stabilised.
Short-term volatility, long-term opportunities
Despite heightened market volatility, MBSB does not expect investors to panic, maintaining its base case that the US-Iran conflict could remain relatively short-lived, lasting around three to four weeks before giving way to containment efforts or negotiations.
Instead of exiting the market, the research house recommends using periods of weakness to accumulate fundamentally strong companies with resilient earnings and long-term growth prospects.
Its preferred stocks for the second half of 2026 are Petronas Chemicals, Hong Leong Bank, YTL Power International, CelcomDigi, Inari Amertron, Gamuda, Mr D.I.Y. Group, CIMB Group Holdings, 99 Speed Mart Retail Holdings and Tenaga Nasional.
MBSB also continues to favour banks as market anchors, utilities for defensive growth, telecommunications companies for dividend income, construction firms backed by strong order books, resilient consumer retailers, selected technology stocks and petrochemical companies poised for cyclical recovery.
Tactical opportunities in oil and gas
The research house believes oil and gas stocks could continue attracting investor interest as long as crude prices remain elevated, particularly companies with exposure to upstream activities, maintenance services, marine operations and energy infrastructure.
Among its preferred names are Dialog Group, MISC, Petronas Gas, Petronas Chemicals, Bumi Armada, Malaysia Marine and Heavy Engineering Holdings (MMHE), Deleum, Velesto Energy, Dayang Enterprise, Hibiscus Petroleum, Uzma and Wasco.
However, MBSB stressed that the sector should be viewed as a tactical trading opportunity rather than a long-term structural investment if geopolitical tensions ease.
Plantation stocks may also benefit from stronger crude palm oil prices, as higher energy costs improve biodiesel economics while supply concerns continue to support edible oil prices. The research house highlighted SD Guthrie, Johor Plantations Group, Kuala Lumpur Kepong, IOI Corporation and TSH Resources as potential beneficiaries.
Despite the uncertain backdrop, MBSB maintained its year-end targets of 1,770 for the FBM KLCI, 12,900 for the FBM Emas Shariah Index and 18,600 for the FBM 70 Index, reflecting its expectation that resilient corporate earnings and domestic economic fundamentals will continue to support Malaysia’s equity market over the medium term.
