HSBC strategists say Malaysia is better placed than many regional peers to handle higher oil prices because it is a net energy exporter and is gaining from the AI hardware cycle. Output has started 2026 strongly, with GDP up 5.4% year on year in 1Q26. Construction growth cooled from double-digit to single-digit rates, but manufacturing and services maintained momentum. Exports have also held up, and on a three-month moving average electronics shipments rose 30% year on year.
The firmer activity data sits alongside rising fiscal pressure from fuel support. The monthly energy subsidy bill has risen tenfold, from MYR700m to MYR7bn, increasing focus on the RON95 policy and its impact on public finances. HSBC keeps its GDP growth forecasts at 4.5% for 2026 and 4.7% for 2027, while lifting inflation projections. Bank Negara Malaysia has raised its 2026 growth forecast range to 4–5% from 4–4.5%, and HSBC expects BNM to keep rates unchanged through 2027.
Opportunities In Equity, Currency, And Derivative Markets
Given the Malaysian economy’s strong start to 2026, we see opportunities in equity derivatives. The ongoing AI-driven tech cycle, which has boosted electronics exports by 30% year-on-year, supports a bullish view on the FTSE Bursa Malaysia KLCI, currently trading near 1,650 points. We believe buying call options on the index or on specific semiconductor-related stocks offers good upside potential.
The Malaysian ringgit has also shown impressive resilience, holding steady around 4.65 against the US dollar even as other regional currencies have weakened. As a net energy exporter with Brent crude prices hovering near $95 a barrel, the country’s trade balance remains robust. This fundamental strength suggests that long positions in MYR through currency forwards or options are attractive.
Risks From Subsidy Policy And Volatility-Based Strategies
However, the key source of upcoming volatility will be the government’s fiscal policy regarding fuel subsidies. The monthly subsidy bill has ballooned to MYR7 billion, creating immense pressure on public finances. Any announcement about subsidy reform will likely cause a significant market reaction, and we must be positioned for this uncertainty.
This subsidy dilemma makes volatility-based strategies particularly compelling over the next few weeks. We are considering options straddles or strangles on the KLCI to profit from a sharp price swing in either direction following a policy decision. The market is currently underpricing the potential impact of a change to the RON95 subsidy.
The forecast for the Bank Negara Malaysia to hold its policy rate at 3.00% through 2027 provides a stable backdrop, but we view this as a fragile assumption. If subsidies are cut, inflation could spike, forcing the central bank to act sooner than expected. Therefore, we are looking at low-cost interest rate options to hedge against a surprise rate hike later this year.
