For Tong, the US economy has performed strongly this year, with GDP growth of 2.8% in the most recent quarter driven by robust consumer spending. However, the labour market experienced considerable volatility in 2024, which may impact inflation dynamics in the future.
“Donald Trump’s re-election and the Republican victory presents a sweeping opportunity to unleash stronger economic growth that could lift corporate earnings on the back of policies such as lower taxes and reduced regulation. With this as the backdrop, we see compelling investment opportunities in both equities and fixed income,” he says.
The exceptional performance of the US equity market has been primarily led by the information technology, communication services and consumer discretionary sectors — where the Magnificent Seven (which refers to Google parent Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) companies reside.
“If you look back in the past year, right up till June, what we have observed is that the market has been very one-sided. About 18 months before June 2024, it was all about the Magnificent Seven, and they contributed over half the upside of the S&P500,” says Tong.
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From June onwards, the market started to get a little “bored,” and with Trump’s campaign in full swing, the Franklin Templeton team began to uncover more opportunities in the market beyond the Magnificent Seven in the broader information technology and healthcare sectors, which were seemingly ripe for picking.
Within fixed income, he favours high-quality assets. Increased interest-rate volatility has opened up opportunities in agency mortgage-backed securities (Fannie Mae, Freddie Mac and Ginnie Mae). Unlike corporate bonds, spreads in this area of the market have not contracted substantially, providing investors with a compelling option despite potential prepayment risks. “We continue to believe that staying diversified in fixed income and equities is crucial as we seek to take advantage of income opportunities,” says Tong.
Meanwhile, the Federal Reserve has been conservative in cutting interest rates. Although the market has predicted a couple of rate cuts this year, there has only been one thus far. Tong adds: “The market expectation has been quite wrong throughout Fed chair Jerome Powell’s administration.”
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With the Fed’s changing stance and Trump’s erratic social media activity, the credit market faces uncertainty. Investors will need to navigate these shifts and the tightening credit spread. While inflation has dominated discussions for the past two years, Tong sees the US gradually moving towards the 2% target. “It’s not there yet, but it’s on the path to get there,” he says, emphasising the decline in the US job market.
Tong believes that this is one aspect that Powell needs to focus on more. “With that in mind, you can see the treasury market reacting, with it going to the bottom in September and now moving back up to reflect market expectations.”
Challenges and possibilities
“The outlook for US growth leans towards a soft landing, but the trajectory could shift, depending on Trump’s policies. Measures like tax cuts and deregulation may support growth, but an aggressive stance on tariffs and immigration could pose risks,” says Brandywine Global’s Lye.
On Trump’s policies, she sees the situation as “still evolving”. In his previous administration, he tended to push out new policies on a frequent basis. “So, at this point, it is about how we reposition our portfolios going forward.”
With a focus on three policies — trade, immigration and fiscal policy — and the possible outcomes, Lye says that growth could be tipped towards the downside. “As a result, the US economy’s benign balance of moderating inflation and moderate growth could be tipped to the downside,” says Lye. She sees US Treasuries as fairly priced and attractive if the downside growth scenario unfolds.
Lye believes emerging markets (EM) and local bond markets may face greater challenges in a global environment of slowing growth. She notes that real yields are lower than in previous years, but this doesn’t mean opportunities in EM are absent — there are always opportunities. The key is to select the right, more resilient ones.
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“We see opportunities in EM rates such as Mexico and Brazil, where valuations are attractive and investor positions are light,” says Lye. Over the longer term, Asia is likely to benefit from supply chain diversions initiated during Trump’s first term, though near-term uncertainty around tariffs could be a drag on exports and investment plans.
Lye is also of the view that China will likely continue to face challenges in its property market and potential tariff-related headwinds, prompting continued government stimulus efforts, though the extent of such measures remains unknown.
“If Trump’s policies are a ‘wild card’, then China’s policies are also going to be uncertain. But China is not going to respond to Trump preemptively and is going to be more reactive instead,” adds Lye.
Looking ahead, with the US dollar remaining overvalued, the Japanese yen could benefit in the coming year. Lye also favours the Malaysian ringgit (MYR), which is supported by a stable economy. “The MYR is structurally supported by growing foreign direct investment (FDI) inflows and a positive trade surplus.
While the US dollar may retain some near-term strength due to Trump policy uncertainties, a slowdown in the US, combined with stabilisation of growth in China, could make the MYR a key beneficiary, given its strong fundamentals,” she says.
Opportunities for Asian equities
“While the market is currently factoring in a very bearish scenario, there are several mitigating factors to consider. Once uncertainty diminishes and the markets gain better clarity, we believe there is potential for rerating in certain segments of the market,” says Franklin Templeton’s Liao. “I do think it’s worthwhile to take a step back and think about the medium to long term.”
First, she outlines how much Trump has delivered on his campaign promises but may need to scale back some of his conflicting goals. Secondly, the US government and the US political system do have a lot of guardrails to prevent significant policy deviation. “So I think if we look through the noise, there may be a law enforcement scenario being implemented next year,” she says.
Liao also points out that the Biden administration has kept many of the tariffs imposed by Trump during the latter’s first term. “So when you look at the companies and the countries in the region, they have already done a lot of work in terms of de-risking their end markets and their supply chains. So actually, I think that there are a lot of opportunities that remain in Asia, especially after the correction in the market we’ve seen post the US elections.”
She adds that Asia is well-positioned to drive global growth, with the region expected to maintain the fastest growth rate among all major economies in 2025. “We are positive on the structural Indian investment story, the cyclical market rebound in China, and the continuation of key investment themes such as consumption upgrading, supply chain diversification, and technological development.”
In other parts of Asia, countries like Malaysia are expected to navigate tariff-related volatility successfully. This is backed by ongoing investment in data centres and manufacturing, progress in the Johor-Singapore Special Economic Zone (SEZ) and stable consumption trends.
