Public Investment Bank has warned that escalating geopolitical tensions and a fragile global economy could weigh heavily on financial markets in the months ahead. In its 1H2026 Market Strategy report, titled Flushing Liquidity Against A Chaotic Global Backdrop, the bank highlighted that while excess liquidity continues to support market valuations, underlying fundamentals remain weak.
Protracted conflict
Analysts noted that the immediate impact of any outbreak of hostility is higher oil prices, but the longer-term consequences are more complex. A protracted conflict, particularly involving Iran, could trigger supply shocks in the global oil market, broadening inflationary pressures and forcing shifts in economic policy.
The report also pointed to slowing US economic activity, as reflected in recent job data, which places added weight on the US Federal Reserve’s upcoming interest rate decisions. Any move by the Fed will have major implications for global stock markets.
Key Issues Highlighted by Analysts: Geopolitical Tensions
- Rising global inflation risks driven by geopolitical instability.
- Oil price shocks as the immediate aftermath of conflict.
- Fragile US economy with slowing job growth.
- Fed interest rate decisions as a critical global market driver.
- Excess liquidity supporting valuations despite weak fundamentals.
- Potential protracted war with Iran unlikely to concede to US demands.
- Broader inflationary pressures from supply shocks leading to policy shifts.
Sector Outlook:
- Favoured sectors: Commodities (oil & gas, plantation), with top picks including Bumi Armada, Hibiscus, Ta Ann, and Malaysia Smelting.
- Banking sector: Maybank and CIMB remain attractive for consistent dividends and defensive domestic earnings.
- Negatively affected sectors: Airlines, construction, auto, and gloves.
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