MBSB Research expects disruptions at the Strait of Hormuz and Bab el-Mandeb to keep oil, freight and insurance costs elevated, creating a difficult combination of inflation pressure, higher bond yields and weaker equity valuations.
In its latest strategy report, Between Two Chokepoints, the research house said the renewed Middle East conflict has created risks at two critical maritime routes — with Hormuz restricting oil supply while pressure around Bab el-Mandeb complicates alternative delivery routes.
The Strait of Hormuz normally handles about 20 million barrels per day of crude oil and petroleum products, equivalent to roughly 25% of global seaborne oil trade, according to MBSB. It said flows through the strait had fallen to less than 10% of pre-conflict levels following the disruption.
The vulnerability of alternative routes has become increasingly important. Saudi Arabia’s East-West pipeline can move crude towards the Red Sea, but MBSB said disruptions to infrastructure and increased security risks around Bab el-Mandeb reduce the reliability of that bypass. Longer diversions around the Cape of Good Hope would increase sailing times, fuel consumption, freight rates and war-risk insurance costs.
Recent market developments underline those risks. Brent crude remained above US$100 a barrel on Sept 17, although prices eased after Saudi Arabia offered additional cargoes through Oman’s Sohar port, following earlier disruption to its East-West pipeline and Yanbu export hub.
Higher Oil Could Keep Yields High
MBSB said the energy shock is also feeding directly into global bond markets.
Rather than generating the usual safe-haven rally in government bonds, higher oil prices are increasing inflation expectations and encouraging markets to price a more restrictive monetary-policy path.
The US 10-year Treasury yield recently breached 5% intraday, with MBSB attributing the move not only to oil but also to persistent inflation, resilient labour-market conditions, large fiscal deficits, heavy Treasury issuance and higher term premiums.
The Federal Reserve on Sept 16 raised its federal funds rate by 25 basis points to 3.75%-4.00%, saying inflation remained elevated while economic activity continued to expand at a solid pace.
MBSB said sustained oil prices above US$100 could broaden inflation pressure, reinforce expectations of further Fed tightening and maintain upward pressure on both US Treasury and Malaysian Government Securities yields.
For Malaysian equities, this creates a two-sided challenge: companies may face higher energy, freight and raw-material costs while simultaneously being valued against higher discount rates and financing costs.
Although Malaysia benefits from higher petroleum-related income and commodity earnings, MBSB cautioned that this provides only a partial hedge because the FBM KLCI also has substantial exposure to banks, utilities, telecommunications, consumer stocks, property and REITs.
Barbell Strategy
Against this backdrop, MBSB advocates a barbell strategy, combining tactical exposure to commodity beneficiaries with domestic companies offering recurring demand, strong balance sheets and more defensive cash flows.
In oil and gas, it highlighted Bumi Armada, Malaysia Marine and Heavy Engineering (MMHE) and Deleum as tactical beneficiaries of higher upstream activity. It also favours MISC and Dialog Group, citing MISC’s long-term shipping cash flows and Dialog’s storage and energy-infrastructure businesses.
Plantations are another potential commodity hedge. MBSB maintained BUY calls on SD Guthrie, Genting Plantations, Sarawak Plantation, Johor Plantations and Ta Ann, arguing that elevated mineral-oil prices can support the relative economics of vegetable oils and biofuel feedstocks.
For its domestic core holdings, the research house favours Tenaga Nasional and YTL Power, supported by regulated and structurally increasing electricity demand, including from data centres.
It also sees defensive qualities in IHH Healthcare and 99 Speed Mart, which offer exposure to healthcare and essential consumption respectively.
Aviation, Property And Tech Face Greater Pressure
MBSB remains more cautious on aviation, transportation, discretionary consumer stocks, energy-intensive manufacturers, leveraged property companies and long-duration technology shares.
These sectors face varying combinations of higher fuel expenses, weaker consumer purchasing power, rising borrowing costs and valuation pressure from higher bond yields.
The research house said a broader equity-market rotation would require more than ceasefire headlines. It would look for physical evidence of normalisation, including safe passage through Hormuz and Bab el-Mandeb, restoration of export infrastructure, lower war-risk insurance premiums, normalised tanker routes and a sustained decline in Brent crude prices.
MBSB remains cautiously constructive on Malaysian equities, but said investors should become increasingly selective, balancing near-term commodity exposure with domestic and defensive holdings until oil prices and bond yields show clearer signs of normalisation.
