MARKET COMMENTARY
March 2026
Global Outlook
In March 2026, global equities (in local currency terms) experienced a broad-based pullback amid escalating geopolitical tensions surrounding the US Iran war, renewed energy inflation pressures, and a higher for longer monetary policy narrative. The conflict severely disrupted regional energy infrastructure and effectively closed the Strait of Hormuz, triggering a surge in oil and gas prices.
Against this backdrop, the S&P 500, MSCI Europe, and MSCI Japan indices declined by 5.13%, 6.22%, and 8.95%, respectively, as investors reassessed global growth expectations. The US dollar appreciated by 0.64% during the month, supported by safe haven demand and a more hawkish interpretation of the latest FOMC meeting amid inflation concerns. In contrast, the euro and Japanese yen remained under pressure, with the yen particularly vulnerable due to deteriorating rate differentials. Meanwhile, the Fed, ECB, and BOJ kept policy rates unchanged at their March meetings, while the 10 year US Treasury yield rose sharply, ending the month at 4.38%.
Global bond yields closed higher in March as fears of rising inflation expectations, driven by the ongoing Middle East conflict, reduced the likelihood of Fed rate cuts. US Treasury yields shifted higher across the curve, with the 2 year yield rising by 42 bps to 3.80% from 3.38%, the 10 year yield increasing by 38 bps to 4.32% from 3.94%, and the 30 year yield climbing by 30 bps to 4.91% from 4.61%.
Within Asia, we maintain a slight preference for equities over bonds (unchanged from last month). Markets remain highly sensitive to headlines, and any re escalation could serve as a pressure test for a diplomatic off ramp. Hence, the call is to buy risk assets on dips. Asian equities are supported by strong earnings growth, reasonable valuations (11x FY27 P/E), and the prospect of improved fund inflows. Asian currencies are also supported by generally sound fiscal policies and positive real interest rates.
Global Outlook of the two capital markets: Fixed Income & Equities
Region: Developed economies
Fixed income
- Our view: Positive.
- In March, The Federal Reserve maintained the federal funds rate at 3.5%–3.75% for the second consecutive meeting, noting that while inflation remains elevated and "uncertain" due to soaring energy prices, they still tentatively pencil in one rate cut by the end of 2026.
- The ECB kept its main refinancing rate at 2.15% but significantly revised its 2026 headline inflation forecast upward to 2.6% and lowered growth projections to 0.9% as the war dampens consumer confidence and disrupts commodity markets.
- The Bank of Japan (BoJ) held its short term interest rate steady at 0.75% in a near unanimous 8–1 vote.
Equity
- Our view: Positive.
- In March, the S&P Global US Composite PMI was revised sharply lower to 50.3 from a preliminary reading of 51.4 in March 2026, while first quarter GDP growth is tracking at a moderate 2.1%.
- In Europe, the Eurozone Composite PMI hovered near stagnation at 50.7, as the services sector barely offset a continued manufacturing slump, while GDP forecasts were lowered to just 0.2% amid energy supply concerns.
- Japan’s S&P Global Composite PMI edged up to 53.0 in March 2026 from a flash estimate of 52.9, while GDP grew by 0.3% QoQ in Q4 2025, higher than the flash estimate of 0.1% and in line with market expectations.
Region: Regional (Asia-Pacific ex-Japan)
Fixed income
- Our view: Positive.
- In March, the Asian bond market delivered muted total returns as regional yields rose in tandem with US Treasuries, driven by global inflationary fears following a spike in oil prices.
- We expect investment-grade Asian bonds to provide a gross yield of 4.00% to 5.00% in 2026. The yield range is anchored by a moderate growth outlook and a shift toward monetary easing by some Asian central banks.
Equity
- Our view: Positive.
- In March, North Asia’s macro landscape showed resilience across manufacturing hubs despite rising geopolitical headwinds. South Korea’s Manufacturing PMI surged to a four year high of 52.6, driven by booming semiconductor demand, while its 1Q26 GDP is projected to rebound by 0.6% QoQ.
- In contrast, China’s RatingDog China General Composite PMI fell to 51.5 in March 2026 from February’s 33 month high of 55.4. Despite the decline, the reading remained broadly in line with the two year average, indicating continued expansion, with growth still supported across both manufacturing and services.
Region: China
Fixed income
- Our view: Neutral.
- In March, China’s new yuan loans rebounded to 2.99 trillion yuan, while Total Social Financing (TSF) climbed to 5.23 trillion yuan, although both figures fell short of analyst expectations.
- While credit flowed steadily into high tech and green energy sectors, stagnant household lending and a slowing M2 growth rate of 8.5% highlighted persistent weakness in private sector demand.
- Despite these headwinds, the NPL ratio remained stable at 1.5%. However, the overall sluggish credit appetite has intensified market expectations for a Reserve Requirement Ratio (RRR) cut in the second quarter to bolster the recovery.
Equity
- Our view: Neutral.
- In March, China set a more cautious GDP growth target of 4.5%–5.0% during its annual "Two Sessions," signalling a prioritized shift toward high-quality development and technological self-reliance over raw expansion. Economists currently project Q1 2026 GDP growth to land between 4.6% and 4.8%, supported by resilient high-tech exports and front-loaded public investment despite ongoing property sector drag.
- Regarding monetary policy, the People’s Bank of China (PBOC) maintained an accommodative but stable stance, leaving its benchmark lending rates (LPR) unchanged at 3% for the month to balance domestic demand recovery with rising global energy price uncertainty.
Region: Domestic (Malaysia)
Fixed income
- Our view. Positive.
- In March, Bank Negara Malaysia maintained the OPR at 2.75%, supported by February headline inflation easing to 1.4% and resilient GDP growth of 5.2% in 2025. This stable policy environment, alongside a sustained recovery in the ringgit, continued to drive the total outstanding bond and sukuk market toward a record RM2.3 trillion. While domestic fundamentals remain solid, the market faced global headwinds from rising energy prices and the US–Iran conflict; however, local fixed income assets remain attractive due to their competitive real yields.
Equity
- Our view: Positive.
- In March, the Malaysian equity market faced increased volatility as global “risk off” sentiment intensified due to the US–Iran conflict. Despite the monthly dip, the market remains anchored by solid fundamentals, including confirmed full year 2025 GDP growth of 5.2% and a resilient Manufacturing PMI that stayed in expansionary territory at 50.5 in February. While banking heavyweights continued to support the index with record dividend payouts from the recent earnings season, investor interest pivoted toward defensive plays and the plantation sector, which surged 11.2% in March as commodity prices spiked amid supply chain disruptions in the Strait of Hormuz.
Investment Implication:6
- History suggests that while geopolitical shocks cause sharp, temporary drawdowns, they rarely have a lasting impact on long term equity returns once the initial uncertainty fades. We maintain our constructive medium term outlook for equities and fixed income, but remain mindful of potential risks. US inflation data, developments in peace talks, and upcoming technology earnings in the coming days could all shape market performance in the week ahead.
- Global Equity: We maintain a neutral stance on US and Japanese equities, a slight underweight to Europe, and an underweight position in cash. We continue to hold off benchmark exposures, including gold, materials, Treasury bond ETFs, and Korea and Taiwan ETFs. With the Strait of Hormuz potentially closed for an extended period, risks have shifted from short term volatility to a more structural global supply shock. Elevated energy prices and disrupted supply chains are expected to weigh on global growth through the second quarter, favoring energy producers and commodity linked assets over energy importing regions such as Europe and Japan. Uncertainty surrounding the trajectory of the Middle East conflict remains high, leaving both inflation and growth outlooks highly uncertain. Despite recent pressure on bond markets, fixed income should continue to play a critical role in enhancing portfolio resilience, particularly if a prolonged conflict increases recession risks.
- Asia ex Japan Equity: Given ongoing geopolitical tensions in the Middle East, volatility is expected to persist in Asian markets as attention remains focused on the timing and durability of a ceasefire. We will continue to hold a diversified portfolio and focus on companies with quality growth, strong free cash flow, and/or improving capital management. We have reduced exposure to companies negatively impacted by supply chain disruptions and rising oil prices. We continue to prefer technology, materials, and industrials with exposure to defence, nuclear, and power equipment.
- Malaysian Equity: The US–Iran conflict remains ongoing with no clear end in sight; therefore, portfolio construction has remained more defensive, with relatively higher cash levels and greater exposure to large capitalization and yield generating stocks. We are closely monitoring developments and will adjust portfolio positioning accordingly. Our focus remains on quality names with high domestic earnings exposure, such as utilities, consumer, and healthcare. In tandem with heightened geopolitical tensions, we are increasing exposure to energy and chemicals. Key risks include unexpected downside to Malaysia’s economic momentum and increased volatility arising from geopolitical and other externally driven events.
- Malaysia Fixed Income: With inflation currently contained and domestic growth remaining relatively resilient amid evolving external risks, we believe the OPR will remain unchanged in the near term. Market participants will closely monitor capital flows and policy signals for any pre emptive action in response to potential inflationary pressures stemming from geopolitical developments. We maintain our preference for the credit segment, focusing on high quality, domestically oriented credits with strong cash flow visibility, while avoiding companies with income exposure to conflict zones. Considering strong credit supply, we aim to rebalance positions and rotate into new credits offering yields that better reflect current market sentiment. Recent market corrections and higher yields have prompted us to upgrade our allocation to government bonds to a slight overweight, given downside risks to the Malaysian economy should the Middle East conflict be prolonged. We expect government securities to trade within a range amid ongoing geopolitical tensions and inflation concerns, and we maintain tactical positioning while remaining vigilant to market developments.
Special Topic3:
Footnotes:
- Bloomberg, 31 March 2026
- Federal Reserve Board, BOJ, European Central Bank, BOJ, 31 March 2026
- MSCI, FactSet, Bloomberg, 31 March 2026
- PBOC, National Bureau of Statistic of China, BOFA Securities, Bloomberg. JP Morgan Research, 31 March 2026
- BNM, RAM, Bloomberg, 31 March 2026
- Principal insight, 31 March 2026
Past performance does not guarantee future results. Performance data represents the combined income and capital return as a result of holding units in the Fund for the specified length of time, based on bid-to-bid prices. Earnings are assumed to be reinvested.
Glossary of Terms:
UW: Underweight
OW: Overweight
MoM: Month-over-Month
YoY: Year-over-Year
FOMC: Federal Open Market Committee
ECB: European Central Bank
UST: United States Treasury
PMI: Purchasing Managers Index
SoE: State-Owned Enterprise
SEZ: Special Economic Zone
BNM: Bank Negara Malaysia
MPC: Monetary Policy Committee
Disclaimer
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