- Tariff Impact on Malaysia: While the 24% US tariff on Malaysian goods is lower than that of many ASEAN nations, caution is needed due to potential contagion effects from higher tariffs on China.
- Malaysia’s Current Decline: The year-to-date market decline is less severe than during the 2018-2019 US-China trade war—check our list of top picks within the article.
- KLCI Target for Malaysia: We maintain our end-2025 KLCI target of 1,770, with an expected market recovery in the 2H2025 as trade tensions ease.
The United States’ imposition of reciprocal tariffs on 185 countries has sent shockwaves through global trade, with Malaysia facing a 24% tariff taking effect on April 9, 2025. While this rate may seem high, it is on the lower end for ASEAN nations, which average 33%.
US Reciprocal Tariffs on ASEAN and Selected Asian Countries
Sources: CGS International, US Trade Representative
However, the move could still negatively affect Malaysia’s exports, particularly because the US was the second-largest destination for Malaysian exports in 2024, accounting for 13.2% of the total. Additionally, China, Malaysia’s third-largest export partner (12.4% of exports), is facing even harsher US-imposed tariffs at 34%, which could further disrupt trade.
Potential Impact on Malaysia’s Key Export Sectors
- Rubber Gloves: Malaysia’s rubber glove industry may gain short-term momentum, especially with Chinese gloves facing a steeper tariff, making Chinese gloves more expensive. However, the oversupply from China could offset this advantage, potentially driving prices down in other markets.
- Technology: While semiconductors are exempt from the new tariffs, companies like Genetec Technology Bhd (Add, Target Price: RM1.80), which derive about 80% of its revenue from the US, could still be vulnerable to future sector-specific tariffs.
- Agribusiness: The impact on Malaysia’s agribusiness sector appears largely insulated from the tariffs as only 2.3% of palm oil exports went to the US in 2024.
KLCI Market Performance Amid Tariff Tensions
The Malaysian stock market has already seen a year-to-date decline of 7.1%, as of April 2, 2025, prior to the US reciprocal tariffs announcement. Nonetheless, this is less severe than the 11.6% drop seen during the US-China trade war of 2018-2019, though the political changes in Malaysia during that time added to the market uncertainty.
Despite the current volatility, we are optimistic about the KLCI’s recovery in the second half of 2025, predicting the market could rebound as trade tensions ease and the US Federal Reserve resumes its rate-cutting cycle.
In line with this, our top picks in the market include Tenaga Nasional Bhd (Add, Target Price: RM19.10), a key enabler of the National Energy Transition Roadmap (NETR); Mr D.I.Y. Group (M) Bhd (Add, Target Price: RM2.09), which stands to benefit from the government’s domestic-income-boosting measures; and Gamuda Bhd (Add, Target Price: RM6.00), supported by its strong orderbook.
CGS International’s Top Picks
Source: CGS International
The Ministry of Investment, Trade & Industry (MITI) has stated that Malaysia will not retaliate with more tariffs but will engage in negotiations with the US over the reciprocal tariffs, focusing on solutions that promote fair and open trade. Malaysia’s success in adapting to these changes and fostering innovation will be key to navigating the shifting trade environment, ensuring sustainable growth despite global challenges.
Reference
CGSI Note | Malaysia Strategy – Reciprocal Hit | April 3, 2025
Disclaimer: Hailey Chung, Manager of Content at ProsperUs, does not own shares of any companies mentioned.
