Investment Implication:³

Global: Slight Overweight US & Japan, Underweight Europe. The US economic dominance remains intact, supported by strong consumer spending and robust corporate balance sheets, in contrast to weakness in Europe and China. However, uncertainty around Trump administration policies on tariffs, immigration, tax cuts and deregulation may affect the US inflation and the fiscal deficit. Combined with labour market resilience, this could challenge the disinflation trajectory of inflation falling to the Fed’s 2% target and delay interest rate cuts. Ongoing inflation pressures and a growing fiscal deficit will likely keep treasury yields elevated, posing risks to the US equities at expensive valuations. Within the US, attractive opportunities may arise in economically sensitive sectors, such as financials and small-mid-cap stocks. Europe faces economic challenges, and it’s vulnerable to risks from increased trade tariffs and political/geopolitical tensions. The fundamental themes of reflation and ongoing corporate governance reforms remain intact in Japan. We maintain the view that policy normalization in Japan will be gradual, with monetary policy remaining accommodative as real interest rates stay negative to support economic growth.

Asian Equities: We have a constructive view of Asian equities. We are looking for idiosyncratic ideas where the return drivers are not major macro factors, e.g., companies where self-help is a large influence. We are positioning the portfolio where there is strong earnings growth, such as beneficiaries of AI spend, rising capex or consumption. Our ideas include technology (beneficiaries of AI), industrial names with exposure to grid capex, strong banking franchises in Southeast Asia, and selective Indian companies that are reasonably valued with growth. We are selective in China, especially in domestic-oriented companies which have shown signs of turnaround, improving topline and margins, and are able to deploy capital efficiently, manage costs and/or declare high dividend yields.

Malaysian Equities: We took this opportunity to take profits in some of our holdings that had positive returns, especially in the Healthcare space. We added Telco names as valuations dividend yields have become more attractive. At the same time, we have been adding laggards in Utilities and Consumer Discretionary. Our biggest underweight remains in the financial sector but we look to increase our weight here at the right opportunity. We are still very selective on technology on the back of high valuations and differing cycles among the tech companies. Key risks are unexpected downside to Malaysia's economic momentum and increased volatility due to geopolitical events.

Malaysian Fixed Income: Active portfolio management will be deployed in uncertain market conditions in anticipation of market volatility by targeting various maturities along the yield curve that could add value. Maintain preference on credit with disciplined profit-taking activities once valuation turns expensive and replaced with new primary issuances or tactical positions in government bonds. We maintain our overweight duration bias relative to the benchmark as the current market conditions remains favourable.

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