Malaysia Recovers as Global Markets Continue Uptrend
Global equity markets continued to climb higher in August (+1.2% month-on-month “MoM”), mainly led by the US technology sector (+1.6% MoM), Eurozone (+1.7% MoM), Asia ex-Japan (+2.2% MoM) and the UK (+2.2%). Within Asia, the key markets that exhibited outstanding performance included China (+8.3% MoM), Indonesia (5% MoM), Thailand (3% MoM), and Taiwan (+3.5% MoM). Malaysia, which had been a laggard, finally saw a recovery (+3.5% MoM), narrowing its year-to-date (YTD) loss to -5.8% .
Overall, the global equity market had a good run YTD, delivered a strong performance of +13.3% YTD despite tariff-related concerns. Likewise, the global bond market posted a commendable positive return YTD (global bonds +6.9% YTD, Malaysia +5.6% YTD), with corporate bonds showing better performance (global corporate bond +8% YTD).
The key market driver to both equity and bond asset class was the easing monetary conditions globally, as well as the US Federal Reserve’s more balanced assessment in August of unemployment and inflation risks, hinting at a possible rate cut in September as opposed to the Fed’s earlier hawkish stance of no rate cut. Nevertheless, the Fed reiterated that future rate cuts would be data-dependent. Besides, robust news flow from the technology sector driven by organic demand growth for AI and encouraging earnings results continued to spur technology stocks.
Meanwhile, positive market performance was also supported resilient global economic activity, driven by both the manufacturing and services segments, supported by front-loadedtrade activity, steady consumption growth and government stimulus measures. Among the regions, the US grew robustly, the Eurozone grew modestly, and China slowed somewhat. To maintain the 5% growth target, China recently further eased housing purchase restrictions and introduced additional consumption stimulus measures to boost consumer demand. Nevertheless, overall global growth is likely to slow in the near term due to higher US inflation,driven by increased tariffs and ensuing bilateral trade agreements, although tariff uncertainty has somewhat abated.
On the local front, Malaysia’s economic fundamentals remain intact with economic growth reported at a steady 4.4% for 1H 2025.Private consumption growth picked up to 5.3% in 2Q, loan growth steadied at around 5% in June and the banking sector remains healthy. Besides, inflation continues to remain benign. However, on 28 July, BNM downgraded Malaysia’s full-year growth forecast range to 4.0% - 4.8%, down from the previous range of 4.5% to 5.5%, due to concerns about the impact of tariff on growth. The 19% US tariff on Malaysian goods, while in line with other countries, is higher than before and could potentially impact trade growth.Additionally, Malaysia has commitments to deliver under the bilateral agreement with the US. In mitigating external trade growth risks, the government announced the 13th Malaysian Plan (13 MP), with development expenditure (DE) allocation of RM430bn, RM15bn (+3.6%) higher than under the 12MP as well as private sector financed development investment totaling RM61bn.
Market outlook
Overall, asset class market performance could diverge and remain volatile. That’s why a mix of investments across different countries and asset types remains the best strategy for steady and reliable performance.
We maintain a positive outlook on the bond market, underpinned by lower MGS supply due to the fiscal consolidation target of 3% by 2030, BNM’s accommodative monetary policy stance, slower global and domestic growth prospects, potential risk aversion and more rates cut or low-rate prospects globally. Nevertheless, as the bond market has performed well and valuations are no longer attractive, better buying opportunities may arise when the bond market consolidates at lower levels.
Meanwhile, we maintain a neutral outlook on the overall equity market. The Malaysian equity market has recovered, in line with our earlier preference for local equities. We expect this momentum to continue and maintain a positive bias toward the local equity market compared to the global equity market.
The positive outlook on local equity market remains supported by robust domestic growth drivers (multiple domestic investment initiatives as reinforced by 13MP, tourism recovery, resilient consumer spending despite SST), low market valuation (14x KLCI1600, with 5-6% earnings growth) and low foreign shareholding (at a historic low of 19.3%).
Nevertheless, we are also cautious about taking on excessive market risk. While tariff uncertainty has abated, the full impact on growth has yet to unfold. 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.