Investment Implication:³

Global: Reduce the U.S. to Slight Overweight, reduce Japan to Neutral, increase Europe to Slight Underweight and increase exposure to off-benchmark assets including Gold ETF, Treasury ETF and stocks. The U.S. economic dominance remains intact, in contrast to weakness in Europe and China. However, uncertainty around the U.S. policies – particularly regarding tariffs, immigration, tax cuts and deregulation - could impact inflation dynamics and the fiscal deficit. Meanwhile, the rise of China’s DeepSeek, raises questions about the sustainability of high capex spending and expensive valuations in major U.S. tech firms. As technology evolves, it will shape equity market leadership, reinforcing the need for diversification within and outside the U.S. Within the U.S., attractive opportunities may arise in economically sensitive sectors, such as financials and small-mid-cap stocks. In Europe, economic challenges persist. However, relatively low-tech sector weight, modestly positive earnings forecasts, and attractive valuation provide a temporary case for diversification. In Japan, the fundamental themes of reflation and ongoing corporate governance reforms remain intact, with monetary policy staying accommodative as real interest rates stay negative to support economic growth.

Asian Equities: We have a constructive view of Asian equities. We like companies with a clear growth path, strong cashflows, and/or those with clear or improving shareholder return policies. Our preferences include technology (beneficiaries of AI investment and application of AI models), selective Chinese domestic consumption, industrial names with exposure to infrastructure and defense capex, strong consumer and banking franchises in Southeast Asia, and selective Indian companies that are reasonably valued for growth.

Malaysian Equities: Looking ahead, elevated volatility is expected in the short term due to uncertainties on the Trump administration and policies. There was a widespread decline across various markets, and Malaysia was not spared. However, we took the opportunity to deploy some capital in sustainable dividend yielders and value beaten-down names, which we think have been de-rated beyond their fundamentals. Given the current macro environment, we have made no significant changes to our portfolio strategy as we remain constructive on domestic-driven sectors and potential direct beneficiaries of the NETR. We stay focused on sectors such as Construction, Property and Utilities. We remain optimistic about the financial sector due to the rising confidence in Malaysia’s structural reforms and the fact that the sector offers a defensive shelter amid periods of uncertainty. 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: Local market volatility is expected to remain on the back of uncertainties in the global market amidst President Trump flip flop policies. Propose to maintain active portfolio management in anticipation of the rising volatility to ensure better total return in the long run given current tight credit spreads and the flat yield curve. Preference on corporate credit bonds to continue versus government bonds with a bias on primary new credit issuances due to the yield pick-up and better total returns. Active trading is required for tactical positions held in government bonds. We maintain our overweight duration bias relative to the benchmark.

Investors need to remain vigilant to changes in trade and tariff policies. As we navigate 2025, the interplay between the shifting policy landscapes and evolving market conditions calls for active and diversified portfolio construction. Our strategy emphasizes quality growth and income attributes.

• Quality Income: Quality income and bonds can help protect against market volatility and sustain performance in a range-bound market.
• Quality Growth: An investment style which has historically outperformed as a whole, with the highest relative returns during volatile markets.

Glossary:
UW: Underweight
OW: Overweight
MoM: Month-over-Month
YoY: Year-over-Year
FOMC: Federal Open Market Committee
ECB: European Central Bank
UST: United States Treasury
PMI: Purchasing Managers Index
SoE: State-Owned Enterprise
SEZ: Special Economic Zone
BNM: Bank Negara Malaysia
MPC: Monetary Policy Committee  

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 January 2025
2. Federal Reserve Board, 31 January 2025
3. Principal, 31 January 2025
4. European Central Bank, 31 January 2025
5. Federal Open Market Committee (FOMC), 31 January 2025
6. JP Morgan Research, 31 January 2025
7. Bloomberg, 31 January 2025
8. BofA Securities, 31 January 2025
9. National Bureau of Statistics of China, 31 January 2025
10. Bank Negara Malaysia, 31 January 2025