In this article, Prudential Assurance Malaysia Berhad’s Investment Market Strategist, Esther Ong, provides insights into the drivers behind June’s market performance, including resilient corporate earnings, continued enthusiasm for artificial intelligence (AI), easing geopolitical tensions and strong gains across key markets in Asia and Europe. She also highlights how inflation concerns, higher-for-longer interest rate expectations and currency movements may shape the investment outlook.

As markets continue to balance growth opportunities against ongoing risks, maintaining diversification across local and global equity and bond funds may help investors remain focused on their long-term financial goals.

 

In June, global stock markets experienced a more volatile trading environment. While markets reached new highs in early June, but gains eased towards the end of the month.

Global equities rose 1.2% month-on-month (MoM). The main gainers were Japan (+13.2%), the Asia ex Japan region (+7.4%) and Europe (+4.8%). Meanwhile, the US market was flat, as US technology stocks fell 0.7% MoM, and Malaysia also lagged, falling 1.0% MoM.

Markets were supported by better company earnings, continued excitement around artificial intelligence (AI), and interest in major IPOs. However, concerns over higher US interest rates and the US-Iran conflict continued to weigh on sentiment. As geopolitical  tensions eased, risk appetite improved once again, particularly across  Europe and Asia.

Despite the more volatile backdrop, global equities remain firmly positive year-to-date (YTD), up 11%Japan is the strongest performer at +42.5%, followed by Asia ex Japan at +31.2%. The US and Europe each delivered about 9% returns. AI remains a key theme supporting markets. Global bonds have been weaker, as bond yields stayed high due to inflation concerns. Malaysia bonds were more resilient, delivering a positive return of 0.9% YTD.

Oil prices declined sharply by about 22% MoM after the US and Iran agreed to a 60-day truce for negotiations. Still, the situation remains fragile. Even after the sharp decline, Brent crude remained elevated at USD78.02 per barrel, up 29% YTD, continuing to pose upside risks to inflation.

Inflation has become an increasingly important concern for markets. Some central banks, such as the European Central Bank (ECB) and Bank of Japan (BoJ), have raised rates or may consider doing so. The US Federal Reserve has also sounded more cautious on inflation. Its longer-run rate stayed at 3.1%, GDP growth was revised down to 2.2%, unemployment was lower at 4.3%, and inflation was revised higher to 3.6%. As a result, interest rates may stay high for longer. The US dollar strengthened by 1.4% MoM, while the euro and Asian currencies, including the ringgit, weakened.

Overall, investors remain willing to invest in equities, but market gains may be more limited from here. The global economy is still growing, but momentum is uneven. The US economy remains resilient, Europe is softer, and China is stable with support from exports and policy measures. Inflation and high interest rates remain the main risks.

Malaysia’s economy remains resilient. May exports grew strongly by 45.3%, supported by re-exports and domestic exports. The electrical and electronics sector remained the key driver, helped by demand for semiconductors, AI and digital infrastructure. Domestic demand also remained supportive, underpinned by tourism activity, consumer spending and investment initiatives. Nevertheless, Malaysia’s growth is expected to remain around 4.0%–4.5%.

Malaysia’s inflation rose to 2.0% in May. Inflation may rise further in the near term due to higher energy prices and supply chain issues, but the increase may remain manageable if geopolitical tensions stay contained. Bank Negara Malaysia is likely to keep interest rates unchanged for now. BNM expects 2026 growth of 4.0%–5.0% and inflation of 1.5%–2.5%.

Despite Malaysia’s resilient fundamentals, the local stock market remained under pressure due to softer 1Q earnings and local political noise ahead of state elections in Johor and Negeri Sembilan. Higher US interest rate expectations and a stronger US dollar also weighed on the ringgit, which weakened by 4.5% to RM4.14/USD. Foreign investors also reduced exposure to local equities and bonds.

In summary, Malaysian bonds have continued to outperform their global counterparts, supported by a relatively more resilient domestic backdrop. Bond yields may move slightly higher due to inflation, foreign outflows and fiscal concerns, but any weakness could create investment opportunities. For Malaysian equities, current valuations look reasonable. The market could benefit from better earnings, resilient consumer spending, investment projects, data centre developments, electrical and electronics manufacturing, and tourism.

Market Outlook:

Bond Market Outlook

The bond market is expected to remain stable because:

  • Inflation is expected to stay manageable at around 2.0%-2.5%.
  • BNM is likely to keep interest rates unchanged for now.
  • Government bond supply should remain manageabke as fiscal consolidation remains a long-term goal.

Equity Market Outlook

The local stock market may improve over time, supported by:

  • Malaysia’s resilient economy, although growth may be moderate.
  • Supportive government policies, investment projects, the 13th Malaysia Plan and Budget 2026.
  • Expected 2026 GDP growth of 4.0%–4.5%, with the fiscal deficit targeted at 3.5%.
  • Corporate earnings recovery, with 2026 earnings growth expected at 5.0%–10.0%.
  • Potential foreign inflows if global risk appetite improves and the US dollar weakens.
  • Possible market opportunities before and after the domestic elections, if policy support improves.

Investment Strategy:

Market returns can differ by country and asset class. To manage risk, investors should diversify across equities and bonds.

Given higher geopolitical risks and tariff uncertainty, we continue to recommend a balanced portfolio, with 50%–60% in equity funds and 40%–50% in bond funds. For diversified exposure, investors may consider PRULink Managed 2 Fund, PRULink Managed Plus Fund and PRULink Strategic Managed Fund. For bond exposure, PRULink Bond Fund 2 may help provide more stable income and reduce equity risk. For local and Asian equities, investors may consider PRULink Equity Income Fund, PRULink Equity Plus Fund and PRULink Dragon Peacock Fund. For global equities, PRULink Global Strategic with Hedging Fund, PRULink Global Market Navigator and PRULink Global Leaders Fund are preferred.

 

 Esther Ong is the Investment Market Strategist of Prudential Assurance Malaysia Berhad (PAMB).Esther is a qualified Chartered Financial Analyst as well as having obtained MSc Investment Management and BSc Insurance & Investment with a Financial Markets Association of Malaysia (Persatuan Pasaran Kewangan Malaysia or PPKM) license.

This feature is to provide general information on the current situation of the economy with the information available at the given time. This feature does not constitute investment advice and cannot be used or substituted as such. The opinions of the author may not necessarily reflect the views of Prudential Assurance Malaysia Berhad.