13 March 2025
- The US equity market faced significant turbulence driven by President Trump’s administration’s imposition of several trade tariff policies which came into effect early March such as the 25% tariff on all steel and aluminium US imports in addition to tariffs imposed on imports from Canada, China and Mexico. Europe, Canada and China announced retaliatory measures imposing counter tariffs on $28 billion worth of goods stoking fears of a global trade war which erased $4 trillion from US equity valuations between Feb and Mar’25. The S&P 500 closed at 5,599.3 on 12 Mar’25, falling 9.3% from its all-time high of 6,144 recorded on 19 Feb’25.
- While global recession is not present at this moment, the effects of tariffs and trade wars is foreseen to be a slowed down global growth. Consensus forecast global growth for 2025 at 2.9% (2024: 3.3%) but the risk is more on the downside. The drag on trade and manufacturing activity is likely to weigh on risk assets prompting investors to pivot toward defensive positions. US Treasuries (USTs) rallied as a result with the yields of the UST 10Y falling to as low as 4.158% on 3 Mar’25 from the highs of 4.792% registered on 14 Jan’25. Nevertheless, the UST has also been moving in large swings as markets is seen as not being able to decide between growth and inflation risk. Central banks including the Fed are expected to proceed cautiously with rate cuts (0–50 bps in 2025 for the Fed) to balance growth risks against inflationary pressures.
Impact to Malaysia
- Following the U.S. market downturn, Bursa Malaysia experienced a significant decline as investors turned more risk adverse. The FTSE Bursa Malaysia KLCI (FBM KLCI) fell to a low of 1,484.83 on 12 Mar’25, down 5.7% from 1,574.70 at the start of the month (YTD: -9.1%).
- While Malaysia’s direct exposure to US tariffs is limited (trade deficit: 0.8% of GDP), supply chain realignments such as from China could offset risks and attract manufacturing investments. Despite the equity sell off, the MYR has been relatively resilient.
Bond Market Outlook
- Despite the global turbulence, Malaysian Government Securities (MGS) yields remained stable. The 10Y MGS closed at 3.80% as of 12 March, with overall yields across the curve shifting 1 – 7bps lower since early February. Strong local demand evidenced by 2-3x oversubscription at government bond auctions this year have offset some foreign outflows recorded in February. Corporate bond issuance surged 69.7% MoM to RM14.77 billion in Feb’25, reflecting investor appetite for higher yields in stable credit environments.
- We maintain a constructive outlook on Malaysian bonds as a safe haven amid equity volatility. Demand will be bolstered by a stable monetary policy (BNM holding OPR at 3.00%), institutional liquidity, and attractive corporate issuance spreads. We foresee that there may be more inflows into the fixed income market as investors shield themselves from the volatility in the equity market. Our strategy remains a duration of 4-6 years and to participate in primary corporate issuance which may give higher spreads compared to the secondary market. While global headwinds persist, we anticipate continued resilience in the domestic bond market underpinned by Malaysia’s macroeconomic stability and a stable interest rate environment.
Disclaimer
The information, analysis and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual entity. Individual investors should contact their own licensed financial professional advisor to determine the most appropriate investment options. This material contains the opinions of the manager, based on assumptions or market conditions and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information provided herein may include data or opinion that has been obtained from, or is based on, sources believed to be reliable, but is not guaranteed as to the accuracy or completeness of the information. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Opus Asset Management Sdn Bhd and its employees accept no liability whatsoever with respect to the use of this material or its contents.
