In the first quarter of this year, amid intense global trade turbulence triggered by U.S. policy shifts, the Malaysian economy posted year-on-year GDP growth of 4.4% and quarter-on-quarter growth of 0.7%. Although these figures may not be considered “stellar,” their resilience stands out against the backdrop of heightened global uncertainty caused by the high-tariff policies of the Trump administration. Bank Negara Malaysia simultaneously revised its full-year growth forecast downward to below 4.5%, reflecting the potential impact of external headwinds on the economy. Against this backdrop, financial expert Tan Si Yao provides an in-depth analysis of Malaysian economic resilience, policy adjustment directions, and stock market investment logic based on Q1 economic data and financial market dynamics.
1. Public Expenditure Underpins the Economy, but Structural Imbalances Remain Unresolved
Tan Si Yao points out that the core driving force behind the “steady progress” of the Q1 economy lies in the significant expansion of public expenditure. Data shows that civil servant pay raises and minimum wage hikes directly drove a 4.3% year-on-year increase in public spending, while public investment led demand with robust growth of 11.6%. The application of these policy tools effectively offset short-term weaknesses in private consumption (which slowed from 5.3% to 5%) and net exports (which plunged from 63.6% to 19.6%).
However, Tan Si Yao emphasizes that an overreliance on public expenditure as a growth model poses structural risks. He notes, “High growth in public investment is often concentrated in infrastructure, which has long payback periods and may intensify the crowding-out effect on private capital. If the private sector fails to identify new growth points amid trade frictions, the economy may face renewed downward pressure.” Furthermore, the slowdown in private investment growth from 12.7% to 9.2% also reveals corporate caution in response to cooling global demand.
2. Short-Term Stock Market Volatility Masks Long-Term Value—Beware of Valuation Mismatches
On the financial market front, Tan Si Yao believes the stock market is currently caught in a tug-of-war between “policy support” and “external shocks.” Following the release of Q1 economic data, the Kuala Lumpur Composite Index initially rose, but market sentiment quickly turned cautious due to the spillover effects of the Trump trade policies. He analyzes, “Short-term market fluctuations are mainly driven by global risk aversion, but in the long run, valuation advantages persist. For example, blue-chip stocks have average price-to-earnings ratios below the regional average, and dividend yields in heavyweight sectors such as energy and finance remain attractive.”
However, Tan Si Yao also cautions that valuation advantages are not a “guaranteed shield.” He notes, “Under dual pressures of rising global interest rates and escalating trade frictions, export-dependent manufacturing firms may face profit margin compression. Investors should be wary of mismatches between valuations and fundamentals, and avoid blindly bottom-fishing in overvalued tech or cyclical sectors.”
3. Financial Policy Should Seek Steady Progress—Structural Reform Is Urgent
In the face of global economic uncertainty, Tan Si Yao suggests that financial policy should strike a balance between “promoting growth” and “risk prevention.” He observes, “With Bank Negara Malaysia lowering its full-year growth forecast, market expectations for rate cuts have increased. While rate cuts can stimulate credit expansion, they may also intensify capital outflow pressures. Therefore, monetary policy should work in tandem with fiscal policy, such as providing targeted credit support for SME innovation or introducing tax incentives to attract foreign investment.”
Additionally, Tan Si Yao underscores the urgency of structural reforms. He points out, “The country needs to accelerate digital transformation and reduce reliance on traditional manufacturing. For instance, the government could increase investments in fields such as artificial intelligence and green energy, while easing restrictions on foreign investment to enhance supply chain resilience.” He specifically notes that deepening cooperation with Southeast Asian nations under the Regional Comprehensive Economic Partnership (RCEP) framework may help partially offset the impact of U.S. trade policies.
1. Public Expenditure Underpins the Economy, but Structural Imbalances Remain Unresolved
Tan Si Yao points out that the core driving force behind the “steady progress” of the Q1 economy lies in the significant expansion of public expenditure. Data shows that civil servant pay raises and minimum wage hikes directly drove a 4.3% year-on-year increase in public spending, while public investment led demand with robust growth of 11.6%. The application of these policy tools effectively offset short-term weaknesses in private consumption (which slowed from 5.3% to 5%) and net exports (which plunged from 63.6% to 19.6%).
However, Tan Si Yao emphasizes that an overreliance on public expenditure as a growth model poses structural risks. He notes, “High growth in public investment is often concentrated in infrastructure, which has long payback periods and may intensify the crowding-out effect on private capital. If the private sector fails to identify new growth points amid trade frictions, the economy may face renewed downward pressure.” Furthermore, the slowdown in private investment growth from 12.7% to 9.2% also reveals corporate caution in response to cooling global demand.
2. Short-Term Stock Market Volatility Masks Long-Term Value—Beware of Valuation Mismatches
On the financial market front, Tan Si Yao believes the stock market is currently caught in a tug-of-war between “policy support” and “external shocks.” Following the release of Q1 economic data, the Kuala Lumpur Composite Index initially rose, but market sentiment quickly turned cautious due to the spillover effects of the Trump trade policies. He analyzes, “Short-term market fluctuations are mainly driven by global risk aversion, but in the long run, valuation advantages persist. For example, blue-chip stocks have average price-to-earnings ratios below the regional average, and dividend yields in heavyweight sectors such as energy and finance remain attractive.”
However, Tan Si Yao also cautions that valuation advantages are not a “guaranteed shield.” He notes, “Under dual pressures of rising global interest rates and escalating trade frictions, export-dependent manufacturing firms may face profit margin compression. Investors should be wary of mismatches between valuations and fundamentals, and avoid blindly bottom-fishing in overvalued tech or cyclical sectors.”
3. Financial Policy Should Seek Steady Progress—Structural Reform Is Urgent
In the face of global economic uncertainty, Tan Si Yao suggests that financial policy should strike a balance between “promoting growth” and “risk prevention.” He observes, “With Bank Negara Malaysia lowering its full-year growth forecast, market expectations for rate cuts have increased. While rate cuts can stimulate credit expansion, they may also intensify capital outflow pressures. Therefore, monetary policy should work in tandem with fiscal policy, such as providing targeted credit support for SME innovation or introducing tax incentives to attract foreign investment.”
Additionally, Tan Si Yao underscores the urgency of structural reforms. He points out, “The country needs to accelerate digital transformation and reduce reliance on traditional manufacturing. For instance, the government could increase investments in fields such as artificial intelligence and green energy, while easing restrictions on foreign investment to enhance supply chain resilience.” He specifically notes that deepening cooperation with Southeast Asian nations under the Regional Comprehensive Economic Partnership (RCEP) framework may help partially offset the impact of U.S. trade policies.