Global & Regional Equities
U.S.
US equities ended lower last week, with the S&P 500 declining around 2.0% while the Nasdaq fell nearly 5.0%, as concerns surrounding the artificial intelligence (AI) investment theme resurfaced and triggered a broad sell-off across technology stocks.
It was a volatile week for the AI sector, as investors once again questioned whether the substantial capital being committed to AI infrastructure will ultimately generate sufficient long-term returns. Similar concerns have surfaced periodically, resulting in sharp but short-lived market pullbacks as investors reassess valuations and the sustainability of the AI investment cycle.
For now, however, the underlying fundamentals remain supportive. Earnings from the major hyperscale technology companies continue to be robust, while capital expenditure plans remain firmly intact. This is reflected in Micron’s latest blowout earnings it reported last week.
As such, while volatility around the AI theme is likely to persist, there has yet to be any meaningful deterioration in the earnings outlook that would suggest a structural change in the sector.
Another notable development last week came from Apple, which announced price increases across several of its product lines. Prices for MacBooks were raised by an average of around 20%, while iPad prices increased by approximately 25%.
The primary driver behind the price hikes is the sharp increase in memory chip costs, with Apple seeking to pass on part of these higher input costs to consumers. The announcement was received cautiously by markets, as investors weighed the potential impact of higher prices on consumer demand.
On a more positive note, energy prices continued to move lower during the week. Brent crude oil has fallen sharply from its recent peak of around USD120 per barrel to approximately USD72. The decline in oil prices is a constructive development for the global economy, as lower energy costs should gradually feed through to lower inflation over the coming months. If oil prices remain well contained, this could help reduce inflationary pressures and, in turn, lessen the need for an extended period of restrictive monetary policy.
On the macroeconomic front, the key data release was the US core Personal Consumption Expenditures (PCE) Price Index, the US Federal Reserve’s preferred measure of inflation. Core PCE rose 3.4% y-o-y in May, broadly in line with market expectations. The absence of an upside inflation surprise helped ease concerns that the Fed may need to tighten monetary policy more aggressively.
As a result, markets partially unwound some of the hawkish expectations that had been priced in following the previous week’s Federal Open Market Committee (FOMC) meeting. Whereas investors had initially priced in as many as 2 additional rate hikes by year-end, expectations have since moderated to around 30 basis points of further tightening.
The benchmark 10-year Treasury yield declined from around 4.50% to 4.38%, while the two-year Treasury yield eased from approximately 4.20% to 4.10%. Notably, longer-dated Treasury securities outperformed shorter maturities during the week.
Looking ahead, investor attention will turn to the upcoming US labour market data, particularly the monthly unemployment figures, which will provide another important gauge of economic momentum ahead of the July FOMC meeting.In the foreign exchange currencies, the sharp decline in oil prices has provided some relief for oil-importing economies such as the Indian rupee. While the Indian rupee recovered alongside the fall in crude prices, it remains around 5% weaker against the US dollar on a YTD basis.
Meanwhile, the Malaysian ringgit received additional support after Bank Negara Malaysia (BNM) announced a series of measures aimed at encouraging greater foreign exchange inflows and increasing the conversion of overseas earnings by Malaysian corporates. Together with lower oil prices and an improving domestic fiscal outlook, these initiatives have strengthened in the ringgit. A combination of supportive domestic policy measures and a more favourable external backdrop should provide greater stability for the Ringgit.
AsiaAsian equities retreated last week, with the MSCI Asia ex-Japan Index declining 4.8% as investors turned more cautious amid renewed concerns over AI valuations. The sharp pullback also coincided with portfolio rebalancing by global fund managers, prompting investors to lock in profits following the strong gains seen earlier this year.Among the major markets, South Korea was the weakest performer falling around 6%, while Taiwan declined approximately 5%. In contrast, ASEAN markets proved relatively resilient, declining around 2%, while India was broadly flat.
South Korea also faced additional country-specific headwinds during the week. Early reports suggesting that regulators were considering a capital gains tax on unrealised gains sparked a sharp sell-off in the market. However, sentiment recovered after authorities clarified that the proposal reflected an individual opinion rather than a formal government policy.
In China, sentiment remained weighed down by a combination of weak economic data and sector rotation. Consumer spending data released 2 weeks earlier pointed to softer-than-expected domestic demand. At the same time, large-cap technology companies such as Tencent and Alibaba Group continued to experience outflows as investors rotated away from internet platform companies and into semiconductor-related names that are viewed as more direct beneficiaries of the AI investment cycle.
In addition, there has been growing discussion around the adoption of lower-cost Chinese AI models by enterprises. While this has raised questions over competitive dynamics within the AI ecosystem, we believe lower-cost models could ultimately accelerate AI adoption by making the technology more accessible. Increased usage would likely drive higher demand for computing power and support continued demand across the semiconductor supply chain.
Against this backdrop, we view the recent weakness in AI primarily as a valuation-driven correction rather than a deterioration in the underlying structural investment thesis. Valuations across parts of the technology sector had become increasingly stretched following substantial gains this year.
On portfolio positioning, cash levels remain broadly unchanged at around 5% to 7%, while we have selectively taken profits in some of our stronger-performing holdings. Overall, we continue to view the current market weakness as a healthy consolidation, while remaining disciplined in monitoring valuations.
Updates on Malaysia
Back home, the FBM KLCI declined approximately 2.6% week-on-week, broadly tracking the weakness across regional markets and slipping into negative territory on a year-to-date basis.
In terms of sector performance, plantation was the sole gainer for the week, supported by firmer crude palm oil prices. On the downside, industrial products recorded the steepest decline, weighed down by Press Metal Aluminium Holdings Berhad following weaker aluminium prices, while the technology sector also corrected sharply in line with the broader regional sell-off across semiconductor and AI-related stocks. Financials also weakened during the week as foreign investors continued to reduce exposure in the sector.
In terms of fund flows, foreign investors remained net sellers for the seventh consecutive week, recording an outflow of approximately RM550 million. As a result, year-to-date outflows have widened to around RM3 billion, amid a stronger US dollar and weaker risk appetite across emerging markets. Domestic institutions and retail investors continued to provide support, largely offsetting the foreign selling pressure.
On the corporate front, it was a relatively quiet week, with the key development being the release of the Public Accounts Committee report on rising private healthcare costs and insurance premiums. Among the proposals were greater pricing transparency, accelerated implementation of diagnosis-related group pricing, and closer regulatory oversight of private healthcare charges. While these measures are likely to have a muted impact on earnings in the near term, they may introduce a longer-term regulatory overhang on the sector given potential pricing pressures. Separately, Sunway Berhad secured its first residential land bank acquisition in Singapore through a 60:40 joint venture, strengthening its property market partnership and further expanding its presence in the Singapore market.
From a portfolio perspective, there were no material changes for the week, with cash levels remaining at approximately 5–10%.
Fixed Income Updates & Positioning
Regional Fixed Income
On a week-on-week basis, Asia investment grade (IG) spreads widened by approximately 6 bps, while high yield (HY) spreads widened by around 13 bps, primarily driven by profit-taking alongside a lower rates environment.
As a recap of year-to-date performance at the close of the first half, the J.P. Morgan Asia Credit Index (JACI) has returned approximately 1.16% as of last week, with performance largely driven by carry. Our regional fund performance remains on track, and we continue to maintain a constructive stance on Asia credit technicals, supported by the region’s relatively low default risk profile.
The key takeaway remains that yields continue to be historically attractive at above 5%, while Australian interest rates are hovering near 15-year highs.
In terms of news flow, Moody’s Investors Service revised the outlook on Thailand’s oil sector to stable from Baa3, and affirmed PTT Global Chemical Public Company Limited at Baa3, with its negative outlook remaining unchanged. This does not constitute a downgrade. These two names represent the fund’s primary exposure to Thailand, albeit at approximately low single percentage combined, and both are state-owned enterprises. Overall, this development is viewed as credit positive, as we expect both issuers to retain their investment grade ratings.
On the primary market front, Asia saw robust supply last week, alongside approximately USD50 billion of issuance in the US investment grade market. Activity was anchored by Nippon Telegraph and Telephone Corporation with a jumbo USD5.5 billion transaction. Other issuers included Sony Group Corporation, Nomura Holdings, Inc., Denso Corporation and Vedanta Resources Limited.
We also observed a reopening of the India investment grade primary market, with Power Finance Corporation Limited and Axis Bank Limited issuing, building on the supply momentum following Housing Development Finance Corporation Limited (HDFC).
Looking ahead, Asia Pacific primary market activity is expected to moderate this week, given the Hong Kong Special Administrative Region Establishment Day holiday on Wednesday and the US Independence Day holiday on Friday.
From a portfolio actions perspective, we participated in Singapore Airlines Limited 5-year CNH dim sum bond and subsequently took profit after the bond appreciated by approximately 70 cents. We also participated in Telefónica, S.A. 10-year Australian dollar bond.
In the secondary market, we have been extending duration, adding exposure along the longer end of the Australian dollar curve in names such as Westpac Banking Corporation, Verizon Communications Inc., and Qantas Airways Limited. These bonds are offering yields above 6% in Australian dollar terms, which we continue to find attractive.
Domestic Fixed Income
Over the past week, the Malaysian Government Securities (MGS) curve eased across the board by 1 to 2 basis points, with the 3-year settling at 3.25%, the 5-year at 3.41% and the 10-year at 3.60%, respectively.
The long end of the curve was supported by strong demand for the 20-year Government Investment Issue (GII) reopening auction, which recorded a bid-to-cover ratio of 3.136 times, pointing to robust appetite for longer duration. This was underpinned by ample domestic liquidity, as well as foreign investor buying, with approximately RM2.7 billion of inflows recorded last week.
In the primary market, we participated in RHB Bank Berhad Tier 2 10NC5 issuance, amounting to RM300 million, priced at 3.97%, representing a spread of 53 basis points over government securities.
From a portfolio perspective, managers continue to raise cash in order to participate in selected primary market opportunities. Overall, portfolios remain largely invested, with cash levels generally below 3%.
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