Risk asset trading volatility continued to heighten across regions amidst uncertainties. Against the backdrop US trade negotiations with the European Union (EU) and a temporary delay to planned tariff hikes, including agreement reached on May 12 between the US and China to bring down the tariffs imposed on each other, the markets registered broad-based gains across risk assets. The World Index gained 5.69% in May. The MSCI Far East Ex. Japan index regained strength with a 6.11% gain, largely due to strong performance of Korea and Taiwan markets on the back of strong appreciation of the Taiwan Dollar and Korea Won against the USD. ASEAN equities lagged on relatively basis with a return of 1.94% with strong divergence in performance across the ASEAN markets. Vietnam and Indonesia stood out with good gains. Vietnam shares (+8.67%) and Jakarta shares (+6.04%) were the top performers. The laggards were Thailand shares (-4.02%) and Malaysia shares (-2.07%). Regional currencies mostly appreciated against the USD. The best performing currencies were Taiwan NT (+7.01%), Korea Won (+3.09%) and Indonesia Rupiah (+1.69%), while the weaker ones were Hong Kong Dollar (-1.09%) and Vietnamese Dong (-0.12%).

The US markets saw broad based recovery. Amidst positive developments on the tariff front, the strong market performance was underpinned by a robust first quarter earnings season. The information technology sector outperformed, but the rally extended to cyclical sectors such as industrials and consumer discretionary. Dow Jones Industrial Average (DJIA) and S&P 500 Index and Nasdaq Composite gained 3.94%, 6.15% and 9.56% respectively. The US economy remained resilient, though it is expected to grow at slower rate for 2025, weighed down by Trump’s tariff policies. The Conference Board Leading Economic Index® (LEI) for the US fell sharply by 1.0% in April 2025 to 99.4 (2016=100), after declining by 0.8% in March (revised downward from the –0.7% originally reported). The LEI declined by 2.0% in the six-month period ending April 2025, the same rate of decline as over the previous six months.

The Stoxx Europe 600 Index gained 4.02%. The continued flow of global funds into the region on allocation decision improved investors’ risk appetite. Advancements in US–EU trade talks helped to alleviate fears of recession, while expectations for fiscal support and increased defence spending, and upward earnings revisions continued to underpin regional sentiment.

Hong Kong and H shares indices gained on bargain hunting. For the month, Hang Seng Index and Hang Seng China Enterprises Index gained 5.29% and 4.41% respectively. Chinese A shares registered positive return of 1.85%. Chinese government announced a new round of monetary and financial easing policies. The required reserve ratio (RRR) was cut by 50 basis points. The loan prime rate (LPR) was also reduced. The policy package emphasizes support for economic growth while maintaining the long-term resilience of financial institutions, especially protecting banks’ net interest margins. To further improve Hong Kong’s global competitiveness, the SFC will embark on initiatives to improve market access and broaden its product offerings.

South Korea’s KOSPI Index gained 5.52% on positive sentiment over potential presidential pre-election rally, although economic indicators were muted.  South Korea’s industrial output turned downward in April owing to the negative effect of the U.S. tariffs imposition. The seasonally-adjusted production index in all industries, which excludes the agriculture, livestock and fishery sector, fell 0.8% in April from a month earlier after rising 0.7% in February and 0.9% in March. The Bank of Korea sharply lowered its growth forecast for this year to 0.8%, confirming near-zero growth expectations. The central bank pointed to a prolonged domestic demand slump and the damaging effects of U.S.-led tariff disputes as key threats.

Taiwan’s TWSE Index made a strong gain of 13.53% as global technology sector advanced drive the technology centric Taiwan market. Taiwan’s CPI eased below the Central Bank 2% threshold in May, led by softer gains in food prices and declines in clothing and transportation. Taiwan export orders totaled US$56.4bn in April, up 6.3% Month on Month and up 19.8% Year on Year, beating consensus of 9.5% Year on Year growth. Electronics orders outperformed, bolstered by early pull-in demand. Among major products, ICT export orders were up by 5.7% Month on Month and 20.0% Year on Year to US$15.65bn in April, as demand uptrends for AI applications and from the cloud industry sustained, coupled with early pull-in demand from clients, resulting in stronger server and networking orders.  The Taiwan Dollar strengthened 7.01% against the USD.

Singapore’s STI gained 1.62%. Singapore’s annual inflation rate stood at 0.9% in April 2025, unchanged from the previous two months but slightly above expectations of 0.8%. This figure remained at its lowest level since February 2021, as prices edged higher for food (1.4% vs 1.3% in March), while they moderated for both housing and utilities (1.0% vs 1.2%) and transport (1.8% vs 1.9%). Singapore may slip into a technical recession after final GDP data confirmed the economy contracted in Q1 2025 even before U.S. tariffs took effect. It contracted 0.6% Quarter-on-quarter.

Malaysia’s KLCI declined 2.07%. Malaysia’s Ministry of Investment, Trade and Industry announced that the country’s exports expanded by 16.4% year-on-year to 133.56 billion ringgit in April. Malaysia’s headline inflation remained unchanged at 1.4% in April 2025, while core inflation edged up to two% from 1.9% in March 2025, according to Bank Negara Malaysia.

Thailand’s SET Index declined 4.02% on expectation of weaker economic activities going forward. Thailand’s economy grew by 0.7% quarter-on-quarter in Q1 2025, slightly above expectations and faster than Q4 2024’s 0.4% growth. Exports rose 2.0%, especially to the US ahead of new tariffs, while imports fell by 2.4% due to weak domestic demand. However, government spending and fixed investment declined further. On a year-on-year basis, GDP rose 3.1% in Q1 2025, beating forecasts but easing from 3.3% in Q4 2024.

Jakarta Composite Index continued to recover.  It gained 6.04% on short covering as investors’ sentiment improved on monetary easing. Bank of Indonesia (BI) cut interest rate 25bps to 5.50%, the second cut for the year. The lending facilities rate and deposit facility rate were also cut by 25bps each to 6.25% and 4.75% respectively. The decision is consistent with efforts to keep inflation within target, stabilize currency, and support economic growth. However, BI revised down Indonesia’s 2025 GDP forecast to 4.6 to 5.4% range (from 4.7 to 5.5%).

The Philippines PSE Index declined 0.21%. The Philippines’ total external trade of goods decreased 2% to $16.99 billion in April from $17.34 billion a year earlier, according to preliminary data from the Philippine Statistics Authority. Domestic economy confidence remained weak as loans from big banks or universal and commercial banks grew slower at 11.2% from March’s 11.8% expansion.

Vietnam’s VN-Index recovered strongly, gaining 8.67% after previous month’s sharp (-7.71%) decline amid concerns over the impact of the reciprocal tariff imposed on the country by the US which is the highest among ASEAN countries. The trade tariff issue remained a key factor that has affected trading sentiment. The country’s negotiating delegation and the US completed the 2nd round of trade negotiations in Washington DC. The next round will begin in early June.

Market optimism over the election of Donald Trump as the new US President on expectations that his policies would be positive for the US sparked a recalibration of macro variables and asset allocation decision. However, as a result of concern about the potential impact of his broad ranging and stiffer than expected tariff policies, market expectation has been negative and US inflation and interest rate outlook turned less dovish. The tariff announcements and the inconsistent and frequent policy changes have led to heightened market gyrations and volatility.  Following the broad sell off after the announcement of across-the-board reciprocal tariffs on “Liberation Day”, the markets have recovered much of their losses when Trump turned down the heat for most countries, at least for the time being, on April 9, and then on May 12 when US and China agreed to reduce substantially the tariffs they slapped on each other.  However, uncertainties remained.  It remains a matter of conjecture as to where the tariffs will eventually settle.  Markets could be roiled along the way.  The US economy and that of other countries are expected to be affected. Any adverse change in the US economic growth trajectory, the US inflation outlook and consumer sentiments,  with their  consequential effect on corporate earnings would have significant impact on the market.

During his Presidential election campaign, Donald Trump had also pitched to bring about a quick cessation to the Russia-Ukraine war should he be elected Escalation of geo-political conflicts and tensions  could also have major adverse impact on the markets. Since his inauguration as US President, Trump has made moves in seeking to bring about a cessation of the conflict in Ukraine.  An end to the Ukraine conflict would be positive for the equity markets. However, a peaceful resolution of the conflict does not appear to any nearer.  It remains to be seen if Trump and his Admistration will succeed in orchestrating a cessation of the conflict in Ukraine.  If this does come about, it would change the geo-political situation in Europe and elsewhere.

We are watchful of geo-political developments as well as policy directions in the major economies, in particular US under a Trump Administration and in China.    The market is keenly watching where Trump’s tariffs for the key trade partners will settle.  The market is also attentive to other US policy pronouncements that would have major fiscal, financial and economic implications.

In Asia, the focus is on the pace of China’s economic recovery which has been weaker than expected.  The tariff issues with the US can only exacerbate the economic situation.  The Chinese property sector continues to face severe challenges, and any sign of stabilization and growth will have positive catalyst for China’s economy and risk assets.  The Chinese government continues to bring forth various measures to help the economy. More can be expected in the wake of the new US tariff situation.  In further moves to address the economic situation, the Chinese government announced in September a slew of monetary, fiscal and policy measures to stimulate investment and consumption, enhance liquidity and restore confidence in the property and financial markets. The Chinese government remains constructive on policies to spur economic activities to achieve economic growth target. While the move has boosted market sentiments, the longer- term effectiveness remains to be seen and will be closely watched.  It may take time for the initiative to bear fruits.  The focus will be on addressing the  challenges in the property market, lifting consumer sentiments, and countering the effects of the new US tariffs.

On external trade, countries with high export dependency for growth in the Asia region including ASEAN will face significant challenges arising from the US tariff policies. The disruption in supply chain realignment may result in temporary mismatch in corporate earnings delivery against market expectation during the initial stage of tariff implementation. This can result in further trading volatility for risk assets. Longer-term, higher tariffs may result in corporate margin erosion and slower earnings growth outlook. Consumers may have to pay higher prices, and this translates to higher inflation rate.

While interest rates have started to be eased, there remains headwind for risk assets, including the impact of the still high interest rate on business and economic activities, uncertainties in the US policies post the US Presidential election, the historically high market valuations in the US, the continuing geo-political tension in Europe, Middle East and in East Asia, and the still slower than expected economic growth in China.  However, in the investment space we are in, we believe there is room for cautious optimism.  After years of prolonged sell down, China equities are under-owned and their favourable valuation offer potential upside, particularly following the recent rounds of significant policy change initiatives from China.

We continue to apply our strategy of focusing on identifying fundamentally healthy companies with low valuations, low leverage, high growth, robust management and a strong track record, and adherence to our investment philosophy of “Never Fully Invest at All Times” which has served us well over the years.

We thank you once again for your continued faith in us, and hope to remain good stewards in our endeavour to protect and grow your capital.

This article is solely for information purposes. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, investment product or service. The information contained herein does not have any regard to the specific investment objectives, financial situation or particular needs of any person. Investors may wish to seek advice from a financial advisor before making any investment decision. Past performance is not indicative of future results. An investment is subject to investment risks, including the possible loss of the principal amount invested.