Staying Dry in November Rain

Despite intra-month market volatility, in November, the global equity market ended the month flat -0.11% month-on-month (MoM), with +19.47% Year-To-Date (YTD) return (USD). The global bond market also ended the month flat with +0.23% MoM but still yielding a strong return of 7.89% YTD. Meanwhile, Malaysia’s equity market also returned flat +0.25 % MoM with -3.88% loss YTD. Local bond market yielded positive return of 5.46% YTD.

Market traded within a narrow range amid mixed economic, corporate and geopolitical signals. Shifting expectations on US rate cut followed the gradual release of US labour, retail and inflation data after the government shutdown, which were largely mixed, keeping bond yields range-bound. The labour market data was mixed with September’s unemployment rate reportedly higher at 4.4% while payroll numbers strengthened. Meanwhile, the high valuations of AI-related stocks, despite being backed by earnings growth, caused market concerns on an AI-bubble reminiscent of the early 2000s tech-bubble. The shifting talk progress on the Ukraine war also kept the market cautious. Nevertheless, the overall positive economic fundamentals and strong earnings reporting season provided support to the market.

Global economic activity remains resilient, supported largely by consumer spending growth on a healthy labour market, and AI related capex investment and demand. But global growth is expected to moderate in the near term due to fading front-loading trade, trade tensions and a slowing labour market. In the US, growth risk also stems from sluggish manufacturing and consumer spending on concerns of higher inflation. Elevated tariffs are expected to erode consumer demand and corporates profit margins. The impact of recent temporary government shut down on growth is likely to not be material.

Without a broader base of business demand beyond tech capex, and improvements in job growth, overall growth momentum is vulnerable to headwinds. Nevertheless, government policy measures like the Fed’s rate-cut path, temporary tariff truce, and China’s fiscal stimulus – aimed at supporting consumer spending - are likely tailwinds to mitigate growth risk. As such, recession risk is remote.

On the local front, Malaysia’s 3Q GDP at 5.2% exceeded expectations, driven by resilient consumer spending and investment growth on the back of multi-year government investment stimulus initiatives, healthy labour market, resilient external trade growth, expected robust tourism growth and reduced tariff uncertainty. Given the strong reported economic growth and low inflation rate at 1.4%, as well as favorable economic growth (2025 growth 4.5-5%) and benign inflation rate expectations (2025: 1.5-2%), BNM like many other central banks also kept policy rate unchanged in November after their recent cut to 2.75%.  Meanwhile, there has been an increase in foreign investment funds in the bond market.

Market Outlook:

Bond Market Outlook

The bond market is expected to stay resilient, underpinned by:

• Benign inflation expectations of 1.7%–2%.

• Supportive monetary policy, with a bias toward easing or maintaining rates rather than tightening.

• Positive demand-supply dynamics, as fiscal deficit consolidation remains on track.

• Encouraging demand growth from both domestic and foreign investors.

Equity Market Outlook

The local stock market is likely to maintain its momentum, driven by:

• Domestic investment initiatives and Budget 2026 measures that reinforce social well-being and expansionary fiscal spending.

• Projected GDP growth of 4.5%–5%, while maintaining fiscal discipline with a targeted fiscal deficit of 3.5%.

• Corporate earnings recovery, with recent results showing improvement and 2026 earnings growth expected at 5%–10%.

Risks and Global Context

• Short-term pullbacks may occur as valuations are no longer cheap, gains are concentrated in tech sectors, and markets have been in an extended upcycle.

• Global growth may slow to around 3% as tariff impacts become more pronounced.

• Corporate earnings could ease due to higher costs and softer consumption demand.

• Inflation risks remain manageable, but U.S. inflation may stay elevated near term, potentially delaying rate cuts.

Tailwinds and Opportunities

Policy support measures, such as rate cuts and robust AI-related capex and computing demand, should provide market tailwinds. While volatility is likely amid economic uncertainties, any market weakness could present attractive investment opportunities, given positive global growth and earnings outlook and low recession risk.

Investment Strategy:

Investment performance may vary by region, so a diversified investment strategy is recommended.

A balanced portfolio of 50-60% in equity funds and 40-50% in bond funds is recommended. For diversification, consider funds like PRULink Managed 2 Fund, PRULink Managed Plus Fund, and PRULink Strategic Managed Fund. For bond exposure to earn stable income, PRULink Bond Fund 2 is suggested, along with local and Asian equity exposure like PRULink Equity Income Fund, PRULink Equity Plus Fund and PRULink Dragon Peacock Fund. For global equity exposure, PRULink Global Strategic with Hedging fund and PRULink Global Leaders Fund are 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.