Global financial markets wrapped up the week on a positive note, with the United States (US) leading the gains among the developed markets, followed by Europe and Japan.
In Weekly Market Recap published on Friday (Nov 24), in Malaysia, Principal said the FTSE Bursa Malaysia KLCI (FBM KLCI) in Malaysia ended the week on a muted note, fuelled by cautious sentiment in the regional market.
“Across Asia, the performances were mixed across the markets, with Korea and the Phillipine leading the way, while China offshore and Thailand declined the most,” it said.
Meanwhile, turning to bond market, the price of the 10-year US Treasury note closed on marginal negative note, with yield stabilising around the 4.4% range after hitting a two-month low.
“The shift was driven by the recent market expectation that the US Federal Reserve (Fed) rate hiking campaign may have come to an end, with the bond prices move in the opposite direction of bond yields.
Principal said its current stance is neutral on both equity and fixed income, with a preference for income-focused funds, with an emphasis of quality, growth and income in stocks and credits.
“We are exercising caution with USD assets and believe that Asian equities and fixed income present more value in the short term. We (also) find bond appealing as we perceive a higher likelihood that central bank hiking cycle will end soon,” it said.
Aside from that, it also see the potential of capital gains in the event of weaker economic growth.
“Therefore, we maintained our preference for investment grade bonds with longer durations as our preferred investment choice. For Malaysia, the projected improvement to the budget deficit, provided in the Budget 2024, improved the outlook for domestic bonds,” it said.
On equities, Principal said it prefer quality and dividend-paying stocks for their defensive characteristics, which can provide resilience in the face of uncertain macroeconomic and geopolitical conditions.
“Our positive outlook is focused on Asia and includes strategic positions in various areas including the bottoming of tech hardware cycle and
long-term growth potential driven by low penetration rates,” said Principal.
Other areas include recovery plays and structural themes in Asean and selective sectors benefitting from China’s reopening.
It also highlighted Malaysia’s growing optimism due to political stability and potential gains from the National Energy Transition Roadmap (NETR) and The New Industrial Master Plan 2030 (NIMP 2030) projected improvement to the budget deficit detailed in the Budget 2024.
“We also favour income-focused approach to ride out volatilities arising from geopolitical tensions, inflationary issues and recessionary concerns,” it added.
On the macroeconomic front, in the US, the latest Fed minutes show no signals on the interest rate decision. Its initial jobless data dropped sharply indicating the labour market slowdown hasn’t fully materialized, Principal said.
“October’s home sale data weakeaned by 4.1% compared to the previous month possibly due to high mortgages rates. Additionally, the October’s S&P Manufacturing and Services PMO had mixed results with manufacturing de-ccelarating to 49.4 while services expanding to 50.8 (a reading below 50 indicates contraction).
“In China, the People’s Bank of China (PBoC) maintained lending rates at November fixing. The one-year loan prime rate (LPR), which is the medium term lending facility used for corporate and household loans, was left unchanged at a record low of 3.45% while the five-year rate, a reference for mortgages, was kept at 4.2% for the fifth straight month,” it added.
