TENSIONS IN the Middle East are once again on the rise as a fragile ceasefire between the United States and Iran shows signs of unravelling, raising fears of a broader and more prolonged conflict.
In Public Investment Bank (PIB)’s first half 2026 (1H2026) Market Strategy, they emphasised that market valuation is being supported by excess liquidity in the system, but the underlying global economy remains fragile and susceptible to shocks.
“In March, we experienced a broad base asset repricing in the global market following the breakout of the Middle East conflict, while liquidity remains ample as M2 money supply continues to increase,” said PIB.
Concerns over inflation have lingered beneath the surface, even though price pressures were relatively well-managed throughout 2025 despite ongoing trade tensions.
According to PIB, the conflict in the Middle East is unlikely to be resolved quickly, as the positions taken by the US, Israel and Iran remain far apart and difficult to reconcile.
A drawn-out standoff that disrupts oil supply could heighten the risk of stagflation — a challenging environment marked by rising prices, sluggish economic growth and a soft labour market.
To navigate this uncertainty, PIB continues to favour exposure to commodity-linked sectors, both in hard and soft resources, as a form of structural protection.
Among its preferred picks are Malaysia Smelting, Bumi Armada, Hibiscus, Kossan and Ta Ann, alongside defensive sectors such as healthcare and banking.
Medical tourism and demand for healthcare services should sustain IHH’s earnings while higher inflation may prompt interest rate hike, not in the near term, but perhaps in 2027.
“CIMB and Maybank remain our favourite picks. We maintain our end-2026 KLCI target of 1,730,” said PIB.
The current energy crisis will eventually drive manufacturing and transportation costs higher, slowing down consumption and global trade.
Given this global chain reaction, US economy will not be insulated by the conflict in the Middle East though it is happening outside America.
The last major global stagflation occurred during the 1970s and early 1980s, triggered by the 1970s oil crisis.
Back then, US inflation surged from 3-5% in late 1960s to nearly 15% in 1979-1980. Interest rate was raised to over 16% in 1981 to restrict money supply and curb high inflation.
“However, we reckon that the Volcker Shock will not be a viable option this time around to fix the economic consequences of Iran war, due to US’ swelling national debt of USD39 tn (US debt was only USD1 tn in 1981),” said PIB. —Apr 20, 2026
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