Construction Sector Largerly Insulated From Direct Impact Of Liberation Day -- HLIB

KUALA LUMPUR, April 22 (Bernama) -- The Malaysian construction sector is largely insulated from the direct impact of Liberation Day, which brought tariffs to over 180 trading partners, with reciprocal rates ranging between 10 and 49 per cent across ASEAN.

Nevertheless, Hong Leong Investment Bank Bhd (HLIB) said the far-reaching nature of these measures, if prolonged, elevates potential second-order risks, which include a slowdown in trade-related jobs and a potential pullback in data centre contracts.

“The KL Construction Index has fallen by 4.3 per cent since Liberation Day, exacerbating year-to-date performance. On the whole, we think that elevated risk premiums and negative wealth effects necessitate adjustment to our valuations.

“In our view, the on/off nature of tariffs could result in deferment of investment decisions affecting the flow of industrial jobs,” it said in a note today.

HLIB said tender opportunities have been coming thick and fast this year, unimpeded by artificial intelligence, Deep Seek fears and global trade uncertainties.

“We anticipate that data centre contracts could start trickling in from the second quarter (2Q 2025 onwards, with awards for larger contract sizes of about RM2 billion per data centre possibly towards the second half, factoring in the evaluation period.

“Encouragingly, several power infrastructure contracts have materialised this year. Tenaga’s electricity supply continues to expand with agreements signed totalling 5.9GW, or 26 per cent up from 4.7GW in the previous quarter.

The overall situation looks sunny at the moment, but HLIB has noted that there could be a pullback in data centre capital expenditure.

“Based on our compilation, in two out past three recessions, there was a 27 per cent y-o-y fall in Big Tech’s aggregate capex, followed by sharp rebounds.

The other risk HLIB is looking at is the possibility of further volatility from possible tweaks to the upcoming US’ AI diffusion rule, effective May 15. Although it is mainly between the US and China, it poses challenges for countries trying to stay competitive in the digital economy. 

The US’ AI diffusion rule relates to the development, adoption and export of AI technologies.

-- BERNAMA