Our Strategy:³

Global: Overweight US & Japan, Underweight Europe. US growth is softening but resilient middle/high-income households and robust large business confidence are helping to offset weakness from lower-income households and small business. Overall strong household and corporate balance sheets should help prevent the economic slowdown from turning into a hard landing. The resilience of the US economy is expected to support the broadening out of risk appetite and earnings expansion across companies and sectors with more reasonable valuations. Combined with rate cuts later this year, this creates a constructive backdrop for risk assets.

Asian Equities: We have a constructive view on Asian equities, with the start of the US rate cutting cycle. We are positioning the portfolio where there is strong earnings growth such as beneficiaries of AI spend, rising capex or consumption. We are selective in China, especially in domestic oriented companies which have shown signs of turnaround, improving topline and margins, and able to deploy capital efficiently, manage costs and/or can declare high dividend yields.

Malaysian Equities: October was a weak month across the region and Malaysia was not sparred. This was the second consecutive month of decline for the KLCI due to global uncertainties in anticipation of the upcoming US presidential election in November. In this volatile environment, stock picking is key and any dips from macro concerns are buying opportunities. We reiterate our strategy with preference on big cap companies with strong fundamentals and solid cash flow and dividends in sectors such as Banks and Utilities. We believe the market weakness would be temporary, underpinned by Malaysia's strong fundamentals, favourable economic prospects, and domestic structural reforms. Key investment themes remain in domestic driven sectors (property, construction, consumer) and potential direct beneficiaries of the NETR. Key risks are the derailment of Malaysia’s macroeconomic recovery and corporate earnings growth due to slower global economic growth and heightened geopolitical risk.

Malaysian Fixed Income: The recent correction in MGS/MGII makes govvies valuation looks attractive again but remain cautious on potential short-term volatilities related to the US elections. Re-pricing of new issuances of corporate bonds looks attractive, offering better yields over the last few weeks. We have a preference in new corporate bond issuances given their better valuations. On duration, we maintain an overweight bias across the yield curve.

Markets are reacting to Trump's victory, signalling expectations of stronger economic growth, higher inflation, slower interest rate cuts, and trade tariffs. As specific policy plans emerge, investors should brace for market fluctuations and consider using significant changes to enhance their long-term portfolios. We slightly prefer equities over fixed income. Key themes for 2025 include: i) the impact of policy shifts on China's recovery; ii) the U.S. economic outlook regarding a soft landing; and iii) the influence of geopolitical risks on asset prices.

• Position for lower yield: Focusing on income can help position for declining yields, protect against market volatility, and sustain performance in a range-bound market.
• Seek quality growth: With seasonal patterns taking effect, we believe quality growth is an appealing equity strategy. This includes companies with strong balance sheets and consistent earnings growth in key markets such as Asia, ASEAN, and Malaysia.

Glossary:
FOMC: Federal Open Market Committee
ECB: European Central Bank
MoM: Month-over-Month
YoY: Year-over-Year
UST: United States Treasury
PMI: Purchasing Managers Index
BNM: Bank Negara Malaysia
UW: Underweight
OW: Overweight

Disclaimer

We have based this document on information obtained from sources we believe to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Expressions of opinion contained herein are those of Principal Asset Management Berhad only and are subject to change without notice. This document should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell Principal Asset Management Berhad’s investment products. The data presented is for information purposes only and is not a recommendation to buy or sell any securities or adopt any investment strategy. This material is not intended to be relied upon as a forecast, research, or investment advice regarding a particular investment or the markets in general, nor is it intended to predict or depict performance of any investment. We recommend that investors read and understand the contents of the funds’ prospectus and product highlights sheet available on the Principal website, which have been duly registered with the Securities Commission Malaysia (SC). Registration of these documents does not amount to nor indicate that the SC has recommended or endorsed the product or service. There are risks, fees and charges involved in investing in the funds. You should understand the risks involved, compare, and consider the fees, charges and costs involved, make your own risk assessment and seek professional advice, where necessary. Past performance does not guarantee future results. Performance data represents the combined income and capital return as a result of holding units in the Fund for the specified length of time, based on bid-to-bid prices. Earnings are assumed to be reinvested. This article has not been reviewed by the SC.

Sources :

1. Bloomberg, 31 October 2024
2. Federal Reserve Board, 31 October 2024
3. Principal, 31 October 2024
4. European Central Bank, 31 October 2024
5. Federal Open Market Committee (FOMC), 31 October 2024
6. JP Morgan Research, 31 October 2024
7. Bloomberg, 31 October 2024
8. BofA Securities, 31 October 2024
9. National Bureau of Statistics of China, 31 October 2024
10. Bank Negara Malaysia, 31 October 2024