June Market Snapshot
After a strong global equity market recovery from April till May, the global equity market performance tapered off in June. Global equity market traded range-bound with diverging market performance (global equity +2.03% month-on-month “MoM”, Malaysia -2.05% MoM). During the month, the key market outperformers were the US (+2.8% MoM), Korea (+15.82% MoM) and India (+1.04% MOM). Other key underperformers, like Malaysia, were Euro (-1.74% MoM) and China (-1.08% MoM), with Indonesia and Thailand performing worse at -5.4% MoM and -9.24% MoM respectively.
With this sharp recovery in 2Q, global equities have recovered to above April 2nd Liberation Day year-to-date (“YTD”), resulting in a +5.2% gain (USD) or +0.10% (MYR), supported by MYR strength of +4.5%. Asia equities also performed well, up 10.44% YTD. However, for the Malaysian equity market, although it recovered to near the Feb high (KLCI 1592) in mid-May (KLCI 1583), posting a marginal decline of -3% YTD, it later drifted down to a decline of -8.4% YTD. Meanwhile, the global bond market continued to garner positive return (Global bond +5.96%, local bond +3.64% YTD).
Overall, in the first half of 2025, Malaysia’s stock market didn’t perform well. On the other hand, global and other Asian stock markets, along with Malaysia’s bond market, showed stronger results. This highlights the importance of having a diversified portfolio—spreading investments across different markets and types of assets helps reduce risk and build more stable, long-term returns.
Globally, the economy is still growing, just not as quickly as before. One reason for this steadiness is that many central banks have started to lower interest rates to support their economies. Also, a temporary pause in trade tensions helped boost investor confidence. The Organisation for Economic Co-operation and Development (OECD) expects the world economy to grow by 2.9% in 2025, which is slower than the 3.3% seen in 2024. Still, fears of a global recession have decreased.
In the US, the economy showed some improvement in May, partly because businesses rushed to place orders ahead of possible tariffs. The job market remains healthy, and consumer confidence is stronger, even though retail sales and factory activity have slowed. Inflation unexpectedly eased in May, although there are early signs it might rise again. Because of these mixed signals, the U.S. central bank, the Federal Reserve, is being cautious. It may lower interest rates two times in 2025 but wants more information before making changes. The Fed also lowered its outlook for economic growth and expects a slight increase in inflation and unemployment.
Over in Europe, the economy is gaining strength due to government spending—mainly on defense—and lower interest rates. The European Central Bank has been more aggressive than the U.S. in cutting rates, making it easier for businesses and consumers to borrow and spend. Meanwhile, China’s economy is mixed. Retail and factory activity are growing, but real estate investment is still slowing. Although the housing market seems more stable thanks to government support, a strong recovery hasn’t happened yet. Whether China will offer more financial help depends partly on how trade talks with the U.S. go.
Back in Malaysia, the economy remains positive but has cooled down. Industrial production, manufacturing, and exports have declined somewhat. However, inflation remains low, foreign investment is increasing, and more money is flowing into Malaysia’s stock and bond markets. The main challenges are an expansion of the Sales and Service Tax (SST), which begins on July 1, and weaker company earnings in the first quarter. Still, the SST is not expected to raise inflation much because it mostly affects non-essential items.
Malaysia’s central bank is likely to keep interest rates steady for now, unless the economy slows down further later this year. If that happens, it may lower rates slightly to support growth.
Finally, the Malaysian Ringgit has strengthened against the U.S. dollar, rising about 4.2% this year. This is unusual because investors often buy U.S. dollars when they feel uncertain. But this year, concerns about inflation, debt, and slower growth in the U.S. have weakened the dollar. In contrast, Malaysia’s currency has become more attractive.
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.
Bond market outlook
YTD, the bond market has done well (+3.6%) on rate cut expectations. We maintain a positive 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, including a possible 25bps cut by BNM.
Meanwhile, credit conditions are expected to remain stable given the healthy banking industry. Domestic growth drivers remain intact and local bond supply-demand dynamics remain supportive. Liquidity risk is currently limited due to ample liquidity but needs to be monitored. While credit spreads may rise after previously tightened to low levels, the absolute yields remain resilient.
Equity market outlook
YTD equity market turned negative (Malaysia -10%, Global +5% (in USD), 0% (in MYR)).
We maintain our neutral equity market outlook with a preference for local equity despite better global equity performance. The reason is that local equity is deemed a defensive market relative to global markets in the current environment of risk aversion, market volatility and weaker USD outlook.
The local equity investment thesis is 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%). However, rising external demand risk dampens the outlook.
Meanwhile, the global equity market erasing much of the “Liberation Day” losses appears overly optimistic, seemingly pricing in minimal collateral damage even though tariff impact persist, despite on a reduced scale from April.
Further market recovery is subject to constructive trade negotiations, future Fed policy direction, extension of U.S. tax cuts, rising global growth risks and geopolitical tensions. Market volatility is also likely to persist as global equity markets including local markets- face earnings growth risks. Supply shock tariffs may spike inflation, narrow profit margins and lower earnings growth. Additionally, expected weak near-term economic data could also trigger renewed market concerns.
Conclusion
In summary, while the positive bond market outlook remains, the equity market outlook is neutral with a cautious bias. 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.
23/6/2025
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.