Global & Regional Equities
US
US equities edged modestly higher last week, with the S&P 500 up 0.10%, as softer-than-expected inflation data briefly lifted market sentiment. Stocks found support towards the end of Thursday and Friday after the delayed November consumer price index (CPI) showed inflation easing to 2.7% y-o-y, down from 3.0% in September and below consensus expectations.
The October CPI release had been cancelled earlier due to the government shutdown, leaving markets with a partial and delayed read on inflation dynamics.
That said, economists cautioned against over-interpreting the data. The moderation in CPI was likely influenced by distortions stemming from the 43-day federal government shutdown, which delayed data collection until the latter half of November, which is a period that also coincided with the start of holiday discounting by retailers.
As such, while the headline print appeared encouraging, markets were reluctant to fully embrace it as a clean signal that inflation is trending downwards. This was reflected in rates, where US 10-Year Treasury yields initially fell on the CPI release but subsequently reversed course, climbing back above 4.16%.
In Japan, attention shifted to monetary policy, where the Bank of Japan (BoJ) raised its benchmark interest rate by 25 bps. The move was widely anticipated, following increasingly explicit guidance from Governor Kazuo Ueda in recent weeks signalling readiness to normalize interest policy. Expectations have since shifted meaningfully, with markets now pricing-in the possibility of 1 – 2 additional rate hikes in 2026.
Asia
Asian equities had a weaker week overall, with the MSCI Asia ex-Japan index declining 1.60%, led primarily by losses in North Asian markets. Korea was the main drag, with the KOSPI falling 3.5%, while Taiwan’s benchmark index declined 1.8%. Hong Kong also saw weakness, with the Hang Seng Index down 1.1% for the week.
Sentiment in Asia remained weighed down by lingering concerns over the sustainability of AI-related capital expenditure, alongside year-end profit-taking pressures. That said, markets began to stabilise and recover from their lows towards the end of the week, tracking gains in US markets.
Looking ahead to 2026, particularly the first half of the year, market leadership is still likely to be driven by technology, with Taiwan and Korea remaining the key beneficiaries. The momentum in these markets continues to be underpinned by the global AI investment cycle, where demand across the semiconductor value chain remains structurally strong.
China’s outlook is more mixed as its domestic economy remains weak. However, the longer-term focus is increasingly on localization as China is building its own domestic AI ecosystem and supply chain. This localisation push is likely to become more prominent over time, particularly as geopolitical considerations and supply-chain resilience remain priorities.
India is another market we are monitoring closely into 2026. If forthcoming policy measures continue to support domestic growth, we could see more sustained capital inflows. Despite delivering around 10% returns this year, India is still viewed as a relative laggard when compared with North Asian markets.
As a market with less direct exposure to the AI theme, India also offers diversification, especially as we are beginning to see earnings upgrades in consumer-related sectors, IT services, banking, and financials heading into 2026.
From a sector perspective, we remain constructive on materials, particularly copper and aluminium. These commodities continue to benefit from AI-driven demand, making them attractive into 2026.
In terms of portfolio positioning, there were no material changes from the previous week. Cash levels remain low, averaging around 4% to 5%. We continue to hold an overweight position in China, maintain a neutral stance on Taiwan, and remain slightly overweight Korea, while India stays neutral.
Updates on Malaysia
The KLCI rose 1.7% last week, breaking above the 1,650 resistance level that had capped the market since early October. The rally was supported by continued strength in the ringgit, which helped lift overall market sentiment.
That said, liquidity conditions remained soft. Average daily trading value was around RM2.3 billion, and foreign investors were net sellers over the week, suggesting that the move was driven more by domestic flows rather than broad offshore participation.
At the sector level, consumer stocks led the market with gains of 2.2%, followed by banks which rose 1.8% on the back of resilient earnings visibility and attractive dividend yields. On the other hand, technology and telecommunications were the main laggards for the week.
Beneath the surface, market breadth was weaker. Small capitalisation stocks underperformed, with fewer than half of stocks advancing during the week. This indicates that the rally was largely driven by selected large capitalisation names rather than a broad-based risk-on move.
In terms of news flow, the recent cabinet reshuffle was viewed as market neutral. Changes were incremental and did not disrupt key economic portfolios, reinforcing expectations of policy continuity and steady execution.
From a portfolio perspective, activity was muted. Funds remain highly invested, with equity exposure maintained in the 90% to 95% range.
Fixed Income Updates & Positioning
Regional Fixed Income
Bond market activity continued to wind down towards year end, with primary issuance effectively closed across major markets. On a week on week basis, credit spreads were broadly stable across Asia and the United States for both investment grade (IG) and high yield (HY), underscoring the resilience of credit markets despite lighter liquidity.
On a year to date basis, credit performance has been constructive. Asia investment grade spreads have compressed by 16 basis points (bps), while Asia high yield spreads have narrowed by 44 basis points. This highlights sustained investor demand for credit and improving risk sentiment over the course of the year.
From a portfolio perspective, fund activity was mainly focused on rebalancing. We continued to reduce duration by rotating into shorter dated bonds. We also took the opportunity to pare exposure to New Zealand banks’ Additional Tier 1 (AT1) instruments following the Reserve Bank of New Zealand’s announcement that AT1 securities will be removed from bank capital framework. This regulatory shift mirrors earlier changes implemented in Australia and also lowers capital requirements for banks.
Domestic Fixed Income
The local government bond market strengthened last week, with yields declining by up to 9 basis points across most tenors. The rally was led by the seven year segment, while the rest of the curve saw yields fall by around three to four basis points. The 30 year maturity was the only segment that ended the week unchanged.
The supportive performance was partly driven by weaker than expected trade data for November. Malaysia’s trade surplus narrowed by 59 %, as exports declined more sharply than anticipated while imports grew faster than expected. Export growth moderated to 7 % after two consecutive months of double digit expansion. Excluding electrical and electronics (E&E), export growth was only 1.6 %, with the headline figure largely supported by re-exports, which rose by around 40 % while domestic exports only grew by 0.3 %.
By the end of the week, the 3-Year, 10-Year and 30-Year Malaysian Government Securities (MGS) closed at yields of 3.00 %, 3.55 % and 4.00 % respectively.
Market activity was quiet, with no government bond auctions or corporate private debt securities (PDS) issuance during the week. Portfolio actions were limited to selective profit taking and switching into secondary bonds offering more attractive valuations. Funds remain largely invested, with cash levels between 1 and 3 % and portfolio duration maintained in the range of 6.5 to 8 years.
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