Navigating 2025 Markets
Summary
Trump 2.0: Trump's tariffs on Canada, Mexico, and China could cause higher inflation leading to higher for longer interest rates
US-China Trade War: Expected to escalate, with potential retaliation from China
Malaysia Market: Inflation expected to rise due to removal of blanket subsidy on petrol & diesel and higher minimum wage hike
Strategy: Focus on investing in sectors that align with long-term secular trends
Since I’m starting this journal, I want to make it a point to do a yearly market outlook on markets that I’m currently invested in – US, SG, MY and HK. So far, below are the events happened in 2024 that I believe will have lasting impact in 2025 and beyond:
Global Markets (US, SG and HK)
US Fed has cut its interest rate by another 0.25% this year. Currently, the interest rate is at 4.25% to 4.50%. They also signal fewer rate cuts in 2025
Trump won the US presidential election. His republican party also gain control of the Congress. It’s a clean sweep
China government unveils various stimulus packages to revive the economy. It seems they are committed to support the economy again
Geopolitical tension still on-going in Middle East and between Ukraine and Russia. It does not seem to be resolving anytime soon
In early Aug-24, USD & SGD weakens against MYR but later rebounded in Oct-24
Local Market (MY)
OPR remained unchanged at 3%. It does not seem like BNM will cut or increase
RON95 blanket subsidy to be replaced with targeted subsidy in 2025
Higher minimum wages were announced during budget 2024
Pay hike for civil service (effective December 2024)
Many export oriented companies’ financials got hit by forex losses due to MYR strengthening
Trump 2.0
Perhaps the most impactful event would be Trump winning the US presidential election. From my reading on countless articles and videos explaining about his policies, the one keyword that keeps appearing is “Tariffs”.
These are taxes imposed by the US government on goods imported into the country. Trump intend to raise the tariffs on all goods from US’s 3 largest trading partners – Canada, Mexico and China. Especially China, considering they are still in a tech-war.
Because of this, I expect below could happen this year (2025):
Inflation making a comeback
Inflation will make a comeback and the US Fed would have to slow their rate cut or, in worst case scenario, increase the interest rate.
If this indeed happens, USD will strengthen against other countries’ currencies. This is good for export oriented companies in Malaysia.
But then again, high tariffs are not good for export companies because it will make the product less competitive in terms of price. An example is how Malaysia charges an exorbitant taxes on continental cars making it less appealing in terms of price when compare against local car makers such as Proton.
While stronger USD can increase the export companies’ revenue when it translates back to its local currency, having lower revenue could potentially offset this gain.
Companies that have strong moat such as switching costs, network effect & economies of scale would continue to do well.
For Singapore REITs, I expect their earnings to continue facing pressure by the higher for longer periods of borrowing costs. On the bright side, this would be offset by those REITs that are able to negotiate for positive rental reversion higher than the increase in borrowing costs.
US-China trade war to escalate
There’s no doubt that this would happen. At the time of writing this journal (December 2024), Trump has already made some comments on the tariffs that he will impose once he inaugurates.
I expect China to retaliate further but what they will do remains unknown to me. But the first casualty will be US companies that are in semiconductor sector.
According to Reuters, below table lists S&P500 companies with largest China exposure in fiscal 2023:
Another company not in the list but has the highest exposure to China is ASML. It is a Dutch company with 47% of its total revenue comes from China, as of 3Q24.
Interestingly, leading AI chipmakers such as NVDA, AMD and Micron have the lowest exposure to China compared to the list above:
I guess having position in these two companies, NVDA and AMD, are not as bad as I thought it would be.
Malaysia Market Outlook 2025
Back in Malaysia, I think inflation would rise due to:
Removal of blanket subsidy to RON95 petrol
Higher minimum wage hike
Pay hike for Civil Service
Higher tax on sugary beverages
Despite this, I expect BNM will maintain its OPR at 3% given how prudent they have been. I still remember banks globally are increasing their key interest rate but BNM chose to delay it. This also explains the weakening of MYR.
While MYR has recovers against USD, I suspect this is just temporary given the high inflationary policies to be adopted in Trump 2.0. I expect companies in Malaysia that have made huge forex losses recently to recover back again in 2025.
However, companies where its input costs are USD denominated would underperform. I guess brewery sector will be flattish in second half of next year.
Data Centre Boom
Perhaps the most notable trends that are growing fast in Malaysia is Data Centre. According to DC Byte’s 2024 Global Data Centre Index, Johor is the fastest growing market within Southeast Asia.
I think companies within the Data Centre value chain will continue to do well. Especially construction, utilities, telco and renewable energy sector. Regretted that I did not invest into Tenaga back in pandemic time.
My Plan for 2025
When investing, my goal is to position my portfolio to capitalize on long-term secular trends. This yearly market outlook doesn’t prompt me to alter my portfolio positions; rather, it only serves as assurance whether my long-term view has change or not.
Furthermore, the markets are dynamic. Anything could happen. Market crashes are often caught by surprise. With this in mind, I think the uncertainties in the US could present me with opportunities to invest into stocks that are beneficiary of long-term secular trends.
For Malaysia market, I continue to like dividend growth stocks. If opportunities exist, I would like to position my holdings more into sectors that are within Data Centre value chain.
Disclaimer:
The information provided in this blog post is for informational purposes only and should NOT be construed as financial advice. Investing in stocks and ETFs involves risk, and there is no guarantee of profits. Past performance is not indicative of future results. It is important to conduct thorough research or consult with a qualified financial advisor before making any investment decisions. The author is NOT a financial advisor and is sharing his personal experiences and opinions only.