Kuala Lumpur: The Malaysian construction sector is largely insulated from the direct impact of Liberation Day, which introduced tariffs affecting over 180 trading partners, with reciprocal rates ranging between 10 and 49 percent across ASEAN. Nevertheless, the broader implications of these measures could pose challenges for the industry.
According to BERNAMA News Agency, Hong Leong Investment Bank Bhd (HLIB) highlighted that while the sector remains shielded from immediate tariff impacts, the prolonged nature of these measures might elevate second-order risks. These include a potential slowdown in trade-related jobs and a possible reduction in data center contracts.
HLIB noted that the KL Construction Index has decreased by 4.3 percent since Liberation Day, impacting year-to-date performance. They suggest that increased risk premiums and negative wealth effects may require adjustments to valuations. The fluctuating nature of tariffs could lead to deferred investment decisions, affecting the flow of industrial jobs.
The bank observed that tender opportunities have been abundant this year, unaffected by fears related to artificial intelligence, Deep Seek, and global trade uncertainties. Data center contracts are anticipated to commence in the second quarter of 2025, with larger contracts valued at approximately RM2 billion expected in the latter half of the year.
Encouragingly, several power infrastructure contracts have been secured this year. Tenaga’s electricity supply continues to grow, with agreements signed totaling 5.9GW, a 26 percent increase from 4.7GW in the previous quarter. However, HLIB warned of a potential reduction in data center capital expenditure.
HLIB also pointed out that in two of the past three recessions, there was a 27 percent year-on-year decline in Big Tech’s aggregate capital expenditure, which was followed by sharp rebounds. Another potential risk is the volatility stemming from possible changes to the upcoming US AI diffusion rule, effective May 15, which, though primarily between the US and China, could impact countries striving to remain competitive in the digital economy. The rule pertains to the development, adoption, and export of AI technologies.