Q4'2025 Market Outlook | Pacing Through the Finish Line - Articles & Commentaries

ADDED:

07 October 2025

PREPARED BY:

As we approach the finish line of 2025, investors face a delicate balance between optimism and caution. The US economy has proven more resilient than expected, even as tariffs and political uncertainty cloud the outlook. Yet, with inflation risks still simmering and global trade dynamics in flux, there is a need for investors to tread carefully.

In our latest Fundamental Flash, we explore the key themes shaping Q4’2025 and how investors can position their portfolios for the year ahead.

Theme 1 | US Economy Remains Resilient and Could Reaccelerate

The US economy continues to demonstrate resilience, with signs that growth momentum could reaccelerate heading into 2026. Latest data revisions showed stronger-than-expected Q2’2025 GDP which rose 3.8%, underscoring the economy’s underlying strength despite elevated policy uncertainty and tariff-related noise.

At the household level, fundamentals remain solid. Household net worth is near record highs, while disposable income remains healthy. Similarly, corporate earnings has outperformed with forward earnings projections for 2026, pointing to robust sales and profit growth.

Even with the S&P 500 near all-time highs, valuations remain underpinned by record-high forward profit margins, suggesting that the market’s optimism is somewhat anchored. However, given the strong run-up for US equities, we are taking a neutral stance given already high valuations and vulnerability to disappointment.

Theme 2 | Fed Rate Cuts to Continue
On inflation, while recent tariff developments have created short-term uncertainty, the impact has so far been contained to soft or sentiment indicators, rather than hard data. However, we are cautious on upside inflation risks, particularly from tariff-related pass-through.

The labour market is more mixed. The September payroll revisions drew considerable market attention, but we think markets have overreacted to such headlines. By accounting for immigration and deportation effects under the Trump administration’s policies, such revisions looks rather justified to maintain a healthy payroll.. Nevertheless, job growth (excluding healthcare) has turned negative for the first time outside of a recession in 25 years, signalling that some softening is underway.

Against this backdrop, we are expecting the US Federal Reserve (Fed) to continue easing policy. Following the Fed’s 25 bps rate cut in September, we expect (2) two additional cuts before the year-end — one likely at the end-October FOMC meeting and another potentially in November.

Theme 3 | Weaker US Dollar Offers Tailwinds for Asia
A softer US dollar could serve as a key tailwind for Asian and emerging market (EM) equities. Historically, EM and Asian markets have outperformed global peers in the 12 months following a US rate cut cycle.

We maintain an overweight stance on Asian equities, which will continue to benefit from a weaker USD, supported by resilient corporate fundamentals and improving domestic demand across key markets.

Within the region:-

Theme 4 | Room for Re-rating in Malaysia

We are turning positive on Malaysia equities as the market enters Q4’2025 with improving prospects for a re-rating. Institutional flows have provided some stability, but the next leg higher will depend on whether foreign flows return in a more meaningful way.

As shown in Chart 2 below, YTD outflows are already nearing levels last seen in 2015 and 2020, suggesting that the brunt of the selling pressure may be behind us. If global fund allocations begin to rebalance, Malaysia could see a recovery in foreign participation, providing a key catalyst.

Domestic fundamentals also reinforce the case for Malaysia. Economic activity remains resilient, supported by the services, manufacturing, and the construction sector. Similarly, the country’s political stability and policy execution have set it apart from its regional peers in an otherwise politically turbulent year for ASEAN.

Although, Malaysia has seen foreign outflows comparable to Indonesia, Thailand, and the Philippines, its stronger macro and policy backdrop suggests current valuations are not fully justified.

We continue to favour structural themes across income, property, utilities, and healthcare which are underpinned by secular growth drivers and steady demand. Should foreign inflows materialise, the market could see a re-rating, positioning Malaysia as one of the more attractive alpha opportunities within Asia.

Theme 5 | All-in Yields Remain Attractive for Bonds
We maintain a positive view on fixed income as a whole as major central banks pivot toward rate cuts. The asset class is expected to benefit from a more accommodative policy environment, providing support for both sovereign and credit markets.

For US/global fixed income, we prefer a neutral stance on duration and continue to favour credits. Economic activity is showing signs of reacceleration and accommodative monetary conditions provide a supportive backdrop for issuers.

In Asia ex-Japan, all-in yields remain compelling even as spreads tighten. Technical factors continue to be favourable, and we maintain a preference for Additional Tier-1 (AT1) instruments given their shrinking supply and high carry.

In Malaysia, the local bond market is expected to remain subdued given a lack of any monetary policy changes, coupled with lower liquidity as the year-end approaches. We are not expecting any further Overnight Policy Rate (OPR) adjustments from Bank Negara Malaysia (BNM) for the rest of 2025. Looking ahead, BNM should retain sufficient policy flexibility to manoeuvre its monetary policy stance, with a particular focus on the country’s exports, as any further weakening will likely lead to further policy easing.

Time to Rebalance

Overall, the global economy continues to show resilience despite heightened policy and geopolitical uncertainty. Yet, higher tariffs and lingering trade tensions remain potential headwinds to an otherwise upbeat outlook.

While markets have largely chosen to focus on the near-term positives, investors should be mindful that such sentiment can shift quickly. Diversification remains essential across strategies, regions, and sectors to manage risk and capture opportunities that endure beyond the current rally.

Take this time to sit down with your Client Portfolio Manager to position your portfolio and and enter the new year with confidence.

Disclaimer

This article has been prepared by AHAM Asset Management Berhad (“AHAM Capital”) (formerly known as Affin Hwang Asset Management Berhad) specific for its use, a specific target audience, and for discussion purposes only. All information contained within this presentation belongs to AHAM Capital and may not be copied, distributed or otherwise disseminated in whole or in part without written consent of AHAM Capital.

The information contained in this presentation may include, but is not limited to opinions, analysis, forecasts, projections and expectations (collectively referred to as “Opinions”). Such information has been obtained from various sources including those in the public domain, are merely expressions of belief. Although this presentation has been prepared on the basis of information and/or Opinions that are believed to be correct at the time the presentation was prepared, AHAM Capital makes no expressed or implied warranty as to the accuracy and completeness of any such information and/or Opinions.

As with any forms of financial products, the financial product mentioned herein (if any) carries with it various risks. Although attempts have been made to disclose all possible risks involved, the financial product may still be subject to inherent risk that may arise beyond our reasonable contemplation. The financial product may be wholly unsuited for you, if you are adverse to the risk arising out of and/or in connection with the financial product.

AHAM Capital is not acting as an advisor or agent to any person to whom this presentation is directed. Such persons must make their own independent assessments of the contents of this presentation, should not treat such content as advice relating to legal, accounting, taxation or investment matters and should consult their own advisers.

AHAM Capital and its affiliates may act as a principal and agent in any transaction contemplated by this presentation, or any other transaction connected with any such transaction, and may as a result earn brokerage, commission or other income. Nothing in this presentation is intended to be, or should be construed as an offer to buy or sell, or invitation to subscribe for, any securities.

Neither AHAM Capital nor any of its directors, employees or representatives are to have any liability (including liability to any person by reason of negligence or negligent misstatement) from any statement, opinion, information or matter (expressed or implied) arising out of, contained in or derived from or any omission from this presentation, except liability under statute that cannot be excluded.

DOWNLOAD