July Snapshot: Global Gains, Local Strains
Global equity markets regained upward momentum in July, led by US (+3.5% MoM) particularly the US technology sector (+4.5% MoM), as well as Asia ex-Japan (+2.8% MoM) and UK (+3.21%). In contrast, the Eurozone market, was muted (+0.2% MoM). Unlike the robust equity performance of other countries in Asia (China +5.3% MoM, Korea 5.2% MoM, Indonesia +10% MoM and Singapore +6.3% MoM), Malaysia equity market performance was rather tapered (+0.8% MoM).
Key market drivers were the positive news flow in the technology sector with the US resuming some collaboration with China on the AI supply chain, modest expansionary of global economic activity largely supported by services sector, and increasing resolution of tariff deals with ahead of the 1st August deadline. Meanwhile, the Eurozone and China growth - held up by domestic stimulus measures and the exports front-loading - boosted market risk appetite.
The US has finalised tariff deals with several countries including the UK, Eurozone, Japan, Mexico and parts of Asia (including Malaysia). Overall, the tariffs on US imports are estimated to be higher at about 20% compared to an estimated 13% during the 90-day temporary truce. The expected higher tariffs are likely to impact US consumer spending growth and global trade growth. As such, global growth is likely to slow in 2H 2025 to about 2.5% growth estimated for 2025. Nevertheless, the increasing progress of tariffs sealed thus far has provided market reprieve. Consequently, from a significant drawdown in April, global equity market has recovered strongly to a positive return year-to-date (“YTD”) (global equities + 11.7% YTD, US + 8.6% YTD, Eurozone +9%, China +5% YTD, Asia ex-Japan equities +17.3% YTD). Malaysia equities are down -8.1% YTD, impacted by disappointing earnings, tariff issues, and domestic political noise.
On the contrary, the global bond market posted lower (global bonds -0.7% MoM) due to global government bond’s underperformance amid inflationary concerns. Meanwhile, global corporate bonds continued to deliver positively, driven by tighter credit spreads and favorable demand underpinned by resilient economic conditions. Meanwhile, the Malaysia bond market did well as the Ringgit was stronger (+0.6% MoM to RM4.22/USD) and 25bps OPR 25bps rate cut as BNM’s pre-emptive move on concerns of prospective growth risk while inflation risk remains benign.
Domestically, local economic fundamentals remain stable supported by resilient consumer and investment spending growth as well as low inflationary pressure despite the recent domestic policy actions like expansion of SST scope. However, the decline in exports growth leading to a broad-based slowdown in manufacturing and industrial production, points to a potential slower growth in 2H 2025 especially with the upcoming higher US tariffs imposed on Malaysian goods.
For Malaysia, independent of sector-specific tariffs, US imports from Malaysia will now be subject to a 25% tariff, while transshipped goods will incur an even higher rate effective 1st August. The 25% tariff is less favourable than the 24% tariff that was announced on Liberation Day that could be faced post the 90-day temporary truce. Nevertheless, Malaysia is still working on negotiating with US to reduce the 25% tariff before the implementation deadline. Given the potential higher tariff backdrop negatively impacting external trade, the likely slower growth in 2H 2025 has resulted in downward adjustment to growth estimate for 2025. BNM now expects 2025 growth to range 4% - 4.8%, down from 4.5% - 5.5% and inflation is projected to moderate to 1.5% - 2.3% from 2% - 3.5%.
Market outlook
Overall, even though some markets are facing challenges, many others are showing strength. That’s why a mix of investments across different countries and asset types remains the best strategy for steady and reliable performance.
We maintain our positive outlook on bond market outlook underpinned by lower MGS supply due to a reduced deficit, accommodative policy rate, current global and domestic growth downgrades or growth risk, risk aversion and more rates cut prospects globally. Meanwhile, we are neutral on equity market outlook with positive bias for local equity market as supported by domestic growth drivers (multiple domestic investment initiatives, tourism recovery, resilient consumer spending despite SST), low market valuation (13x KLCI1500, with 5-6% earnings growth) and low foreign shareholding (at a historic low of 19.3%).
Given that market volatility is likely to persist, and potential equity market upside from tariff negotiations news, as advocated earlier since the start of 2025, a balanced portfolio of 50% - 60% in equity funds and 40% - 50% in bond funds, along with dollar-cost averaging, is recommended.
For investment diversification, PRULink Managed 2 Fund, PRULink Managed Plus Fund and PRULink Strategic Managed Fund are recommended. Otherwise, a mix of PRULink Bond Fund 2 (bond fund) with some local equity funds such as PRULink Equity Plus and PRULink Equity Income funds or Asia equity exposure such as PRULink Dragon Peacock Fund and PRULink Asia Equity Fund are suggested. While for global equity exposure, the PRULink Global Leaders Fund is preferred.
Written by Esther Ong
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.