7 November 2024
- The US election saw Donald Trump re-elected as the 47th President of the United States. Trump’s administration is expected to introduce tax cuts and trade tariffs which may put pressure on inflation. At the same time, Trump’s policies are also expected to result in larger deficit which will see larger issuance of US Treasuries to fund the deficit.
- Leading up to the election, yields on both UST and MGS climbed in anticipation of a Trump win and Republican control of both the House and Senate. The UST yield curve shifted upwards by 40-65 basis points in the month of October, with the UST10y reaching a high of 4.28% at the end of the month — the highest level since Jul’24. Meanwhile, MGS yields moved up by 5 – 21 basis points during the same period, reversing some of the market rally observed since May’24. Post-election, UST yield spiked by another 8-17 bps across the curve with UST2y closing at 4.26% and the UST10y closing at 4.43%.
- Meanwhile, US stocks soared with Trump’s pro-growth policies, such as tax cuts and deregulation, with expectations of increased domestic demand and corporate earnings growth.
Impact to Malaysia
- Malaysia faces both challenges and opportunities under a second Trump presidency. Trump’s protectionist policies, particularly potential tariffs on Chinese goods, could indirectly hurt Malaysia’s export sector due to its integration into China-centric supply chains. This is particularly concerning for Malaysia’s electrical and electronics (E&E) sector, which is heavily reliant on exports to the US via China. About 11% of Malaysia’s total exports are with the US, making the country susceptible to any changes in the US trade policy. On the other hand, Malaysia could benefit from a possible “Trade War 2.0” between the US and China, as multinational companies may seek to diversify their supply chains by relocating operations to Malaysia under the “China+1” strategy. This could potentially lead to an increase of Foreign Direct Investment (FDI) into Malaysia, helping to offset some of the negative impacts from US tariffs.
Bond market outlook
- While Trump’s policies may seem more inflationary, we believe that markets may be overpricing the inflation impact which will depend largely on concrete policy announcements regarding trade tariffs, tax reforms, immigration, and other campaign promises from the Trump administration.
- The bond market has priced in fears of Trump’s re-election few weeks prior, and the actual result saw some knee-jerk reaction. Moving forward, we are of the opinion that there will still be some short-term volatility in the bond market as market participants continue to digest the result of Trump winning the election. However, ultimately, focus will revert to economic data.
- We expect the Fed to maintain its rate cut trajectory, although the pace of rate cuts may continue to pose volatility in the markets. As expected, the Fed cut another 25 bps in November’s meeting.
- We continue to expect more rate cuts going into 2025, not only from US, but also for BOE and ECB as well. Regionally, we also saw Thailand and Philippines cutting rates. Domestically, Malaysia’s 2025 budget is seen as mildly positive for the bond market due to a projected reduction in net government bond supply. Additionally, improved growth prospects and fiscal reforms are expected to boost foreign investor confidence, potentially driving more foreign investments into Malaysian market. As such, we see the current short-term volatility as opportunities to invest at higher yield.
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.
