Citi: Malaysia Equities Gaining Investor Favor on Macro Stability and AI Tailwinds

International investors are showing strong demand for Malaysian equities, citing the country's solid macroeconomic fundamentals and specific growth drivers, according to a new report from Citi. The feedback, gathered from recent investor meetings in Hong Kong, places Malaysia in the middle of the pack for regional investment preferences in Southeast Asia.

Regional Investment Outlook

According to Citi's analysis, investors have a clear hierarchy for Southeast Asian markets. Singapore is the consensus overweight choice, while Indonesia is viewed with more caution. Malaysia and Thailand currently rank in the middle of this regional pecking order.

Investors reportedly agree that Malaysia stands out from a macro perspective. This positive view persists despite potential volatility stemming from geopolitical tensions in the Middle East.

Economic Strengths and Political Watchpoints

Citi's economist projects Malaysia's GDP will grow by 4.6% in 2026, a slight moderation from an estimated 5.2% in 2025. Key drivers for this growth include:

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• Artificial intelligence-related tailwinds boosting electronics and semiconductor exports.
• The realization of previously approved investments coming online.

Headline and core inflation are both expected to remain manageable at around 2%. However, political developments were a dominant theme in discussions. While a general election is not required until 2028, investors are monitoring headlines suggesting a potential early poll and are closely watching the upcoming Negeri Sembilan state election in August.

Market Reforms and Sector Interest

The report noted that feedback on Malaysia's "value-up program" was generally positive, with investors appreciating clearer medium-term targets and improved communication. The potential expansion of the benchmark KLCI index to 50 constituents from the current 30 was also well received.

Sector-specific interest is high for companies linked to data center construction and power. Other areas attracting attention include healthcare, consumer, technology, and banking stocks. Citi highlighted that investors showed particular interest in firms such as Gamuda (KL:GAMU), 99SpeedMart (KL:SPEE), SunMed (KL:SUNA), and KPJ (KL:KPJH).