JPMorgan is bullish on this Southeast Asian country, cites opportunities in data centers

Data centers have been widely talked about and Malaysia is emerging as an attractive investment opportunity offering different sectors and ideas to play, according to JPMorgan.

"It's a multi-theme story going on," Rajiv Batra, head of Asia-Pacific (ex-Japan/China) equity strategy at JPMorgan, told CNBC's "Squawk Box Asia" Wednesday.

"Data center is the one which everyone is talking about. Penang has proven themselves as a tech hub overall," said Batra, adding that Malaysia offers "multiple sectors and ideas to play."

"Besides that, we are seeing they are going into the electric vehicles, they are going into the green energy overall. And now they are even talking about the solars too," he added.

The investment bank said Malaysia is progressing at a much stronger pace than expected and upgraded the country to "neutral" rating from "underweight" last week, raising its target for the Kuala Lumpur Composite Index.

"Policy reforms, data center investment and infrastructure build-out have become key tailwinds for Malaysia, in-line with our 2024 outlook, but are progressing at a much stronger-than-anticipated pace," JPMorgan analysts said in a July 1 note.

The analysts named Malaysia's equity market as "a bright spot" in Southeast Asia with approximately 9% return year-to-date — the highest among countries in the region.

However, they highlighted there could be challenges like "subsidy rationalization, external volatilities, and potential impact of upcoming U.S. elections" that could hurt consumer spending.

Malaysia has emerged as a data center powerhouse, with Johor Bahru named as the fastest growing data center market within Southeast Asia in DC Byte's 2024 Global Data Centre Index.

It is also a hotspot for semiconductor chip firms