Our Strategy:³

Global: Overweight US & Japan, Underweight Europe. While US growth is softening, resilient middle and high-income households and robust business confidence help offset weaknesses from lower-income households and small businesses. Strong household and corporate balance sheets should prevent a hard economic landing, supporting risk appetite and earnings expansion across sectors with reasonable valuations. Combined with anticipated rate cuts later this year, this creates a positive backdrop for risk assets. Conversely, Europe’s recovery faces limited upside due to weak credit demand and fading momentum, making it vulnerable to trade tariffs and geopolitical tensions amid the upcoming US election. In Japan, reflation themes and corporate governance reforms remain intact, with gradual policy normalization and accommodative monetary policy expected as long as US conditions don't worsen.

Asian Equities: With the start of the US rate-cutting cycle and positive earnings revisions, we are positioning our portfolio towards strong earnings growth, focusing on beneficiaries of AI spending, rising capex, or consumption. We are selective in China, particularly with domestic-oriented companies showing signs of turnaround, improved margins, and efficient capital deployment. As the US election approaches, Asian markets may experience volatility due to contentious US-China trade proposals, but long-term fundamentals and earnings growth should drive stock returns.

Malaysian Equities: After a strong market run-up over the past two months, the Malaysian market experienced profit-taking in September and entered a consolidation phase. We continue to lock in gains and shift towards quality and value stocks. While volatility may persist due to external factors, we remain positive on the Malaysian market. Investors await the upcoming budget on October 18 for insights into future fiscal and monetary policies. Our strategy favors large-cap companies with strong fundamentals and solid cash flow, particularly in sectors like banks and utilities. Key themes include domestic-driven sectors (property, construction, consumer) and beneficiaries of the NETR, along with opportunities in undervalued oil and gas sectors.

Malaysian Fixed Income: We expect local government bonds to trade within a range, influenced by developments in the UST space. We plan to raise cash while awaiting the Budget 2025 announcement on October 18. We prefer corporate bonds and will pursue a bottom-up approach to identify value and participate in new issuances. The market environment favors an overweight duration position, supported by a stable domestic policy rate, firmer economic growth, and a stable ringgit. The return of foreign funds, driven by anticipated Fed rate reductions and narrowing interest differentials, will help anchor the bond market.

The markets are approaching the final quarter, with the Fed recently initiating a rate-cutting cycle while reassuring investors that the US economy appears headed for a soft landing. Meanwhile, upcoming US elections and ongoing geopolitical conflict may introduce seasonal volatility. As markets continue to react to incoming data and headlines, we maintain the view that investors should remain invested and use any near-term selloff to build a diversified portfolio focusing on quality.

• 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 is not an indication of future performance. This article has not been reviewed by the SC.

Sources :

1. Bloomberg, 30 September 2024
2. Federal Reserve Board, 30 September 2024
3. Principal, 30 September 2024
4. European Central Bank, 30 September 2024
5. Federal Open Market Committee (FOMC), 30 September 2024
6. JP Morgan Research, 30 September 2024
7. Bloomberg, 30 September 2024
8. BofA Securities, 30 September 2024
9. National Bureau of Statistics of China, 30 September 2024
10. Bank Negara Malaysia, 30 September 2024