Malaysia’s GDP grew 6.3% year on year in 4Q25, the fastest pace since 4Q22. Full-year growth for 2025 was 5.2%, with real GDP projected at 4.5% in 2026, while the Ministry of Finance estimates 4.0%–4.5% for 2025.
Domestic demand is expected to support growth in 2026, alongside government measures and national master plan initiatives. Other drivers cited include implementation of approved investments, stronger tourism linked to Visit Malaysia Year 2026, and activity connected to AI.
Malaysia’s current account surplus rose to MYR31.8bn, or 1.6% of GDP, in 2025, up from MYR27.7bn, or 1.4%, in 2024. The surplus is projected at MYR38.0bn, or 1.8% of GDP, in 2026, compared with the Ministry of Finance estimate of MYR23.2bn, or 1.1%.
External conditions include renewed geopolitical risks and US tariff announcements in mid-January. Measures included a 25% tariff related to countries doing business with Iran (12 Jan) and a 25% levy on certain advanced computing chips (14 Jan).
A one-year pause in US–China tariff escalation lasts until Nov 2026. US Supreme Court proceedings linked to the issue were also delayed.
We see a mixed picture for Malaysian markets in the coming weeks, based on the recent strong economic data from last year. While the headline GDP growth is set to moderate to 4.5% this year from a robust 5.2% in 2025, strong domestic demand is providing a significant cushion. This suggests a potential divergence between the broader FBMKLCI index and specific domestic-focused sectors.
The primary risk comes from the external front, with President Trump’s new tariffs on advanced chips and countries trading with Iran announced just last month. This uncertainty has already caused the Bursa Malaysia Technology Index to underperform, dropping 3% in early February as traders price in these new risks. We believe buying protective put options on the FBMKLCI or on technology-focused ETFs is a prudent way to hedge against further negative surprises from US trade policy.
On the other hand, the domestic story remains solid, supported by government spending and strong consumer activity, with January 2026 retail sales figures showing a healthy 5.8% increase. For derivative traders, this could mean selling put options on fundamentally strong banks or consumer staples companies to collect premium, banking on their stability. This strategy capitalizes on the resilient local economic foundation that is less exposed to global trade shocks.
For the Ringgit, the outlook is complex, as the projected rise in the current account surplus to 1.8% of GDP is a supportive factor. However, global risk aversion, reflected in the VIX index spiking above 20 last month, could pressure the currency. The USD/MYR has been volatile but range-bound around the 4.70 level since January, making options strategies like straddles viable for traders expecting a breakout but unsure of the direction.
The ‘Visit Malaysia Year 2026’ initiative is a clear tailwind, with tourism-related stocks already seeing gains in early February. We think call options on airlines and major hotel operators offer a targeted way to play this expected influx of visitors. This provides a clear long opportunity to balance out hedges placed on more vulnerable export-oriented sectors.
This environment is reminiscent of what we saw during the 2018-2019 period, when US-China trade tensions created significant swings in Malaysian equities despite a stable domestic economy. Back then, nimble traders who hedged their export-oriented exposure while staying long on domestic themes outperformed the market. We anticipate a similar dynamic playing out over the next few months, rewarding those who can navigate the split between a strong local economy and volatile external conditions.
