February 2025 Market Outlook
On January 20, President Donald Trump kicked off his second term with a bold move, imposing a 25% tariff on imports from Canada and Mexico. The market responded positively, as investors had been anticipating even harsher actions, like widespread tariffs on Chinese goods. Consequently, the stock market saw an uptick, ending the month on a high note. The S&P 500 index rose by 2.70%, and the Nasdaq Composite index increased by 2.05%. We view trade war as the potential risk to the market this year. However, Trump seems to be adopting a more measured approach to avoid large-scale disruptions to the US economy.
On January 27, an advance AI model developed by Chinese company, DeepSeek, was unexpectedly revealed. The model, which is said to rival OpenAI’s ChatGPT but can operate on less powerful chips, caused a significant sell-off in tech stocks reliant on hardware. Broadcom, Nvidia, Taiwan Semiconductor Manufacturing Company (TSMC) and AMD fell by 17.4%, 17%, 13.3%, and 6.4%, respectively, as investors feared a potential drop in demand for high-performance AI chips. On the other hand, competitors like Microsoft and Alphabet experienced smaller losses of 2.14% and 4.20%, respectively.
The US dollar (USD) experienced volatility throughout the month of January 2025. It opened at 4.4600 against the Malaysian ringgit (MYR) and fell to 4.3750. However, escalating trade tensions—sparked by Trump’s tariffs on Canada, Mexico, Colombia and China caused the dollar to rebound and closing at 4.4500, a modest 0.44% decline from the previous month.
US Treasury yields experienced significant fluctuations. The 10-year Treasury yield climbed above 4.80% during mid-month and eased back to 4.537%, showing little net change by month-end.
The Federal Open Market Committee (FOMC) held its first meeting of the year, keeping interest rates unchanged as expected, with no major impact on the market.
In Japan, the Bank of Japan (BoJ) raised interest rates to 0.50% on January 24, the highest since the 2008 financial crisis. Unlike the volatility caused by the July 2024 rate hikes, this decision was met with relative calm, reflecting market expectations.
Closer to home, On January 7, 2025, a major milestone was reached in Malaysia-Singapore relations as the two countries signed an agreement to create a special economic zone in the southern Malaysian state of Johor (JS-SEZ) during the 11th Malaysia-Singapore Leaders’ Retreat, hosted by Malaysian Prime Minister Dato’ Seri Anwar Ibrahim. The JS-SEZ is the first special economic zone to span the borders of Southeast Asia.
The JS-SEZ Agreement, which was the result of a year of negotiations, aims to boost economic collaboration between the two nations, with a focus on attracting high-value investments to the region and generating 20,000 job opportunities across various sectors within the first five years.
Covering the Iskandar Development Region and Pengerang, the JS-SEZ spans over 3,500 square kilometres in southern Johor. Existing road and rail connections already link Johor and Singapore across the narrow strait, and a high-speed rail link is also under development.
The establishment of the JS-SEZ offers several key advantages for businesses looking to expand in Johor, Malaysia:
- Competitive Tax Incentives: Companies investing in high-growth sectors within the JS-SEZ will benefit from a special corporate tax rate of just 5% for up to 15 years. The Malaysian government has identified 16 key sectors, including manufacturing, electronics and semiconductors, aerospace, healthcare, and technology services, making it an attractive location for businesses in these fields. This move is expected to foster the development of a more robust digital ecosystem, helping position Malaysia as a regional data centre hub.
- Access to a Deeper Talent Pool: To attract top talent, eligible knowledge workers employed in the JS-SEZ will receive a concessionary income tax rate of 15% for up to 10 years. This incentive is aimed at encouraging professionals who may have been considering relocation to other global tech hubs. Further details on the eligibility criteria will be released in the future.
- Investment Incentives: Various additional incentives are being developed, including grants, subsidies, and financial assistance for capital investments, R&D activities, and training programs. The Malaysian government has also set up the Invest Malaysia Facilitation Centre-Johor, which will act as a one-stop shop to support investors with consultation services and guide them through the application process for approvals. This will complement the existing advisory services at the Malaysian Investment Development Authority.
- Enhanced Transportation Infrastructure: A key feature of the JS-SEZ is the Rapid Transit System Link (RTS), a 4-km light-rail link currently under construction. The RTS will significantly improve connectivity between Johor and Singapore, helping to ease traffic congestion at the Johor-Singapore Causeway, one of the world’s busiest land crossings. The RTS is scheduled to begin operations by the end of 2026.
- Improved Cross-Border Movement: Inspired by Hong Kong and Shenzhen, Malaysia and Singapore are working on implementing a QR code-based, passport-free immigration clearance system at land checkpoints to facilitate smoother cross-border movement. Singapore introduced this system in March 2024 and Malaysia is expected to roll it out later this year.
Together, these factors make the JS-SEZ an enticing opportunity for businesses looking to expand in Johor, offering tax incentives, access to talent, improved infrastructure, and smoother cross-border operations.
As market dynamics and volatilities continue to evolve, it is wise for investors to consider incorporating alternative investments, such as private equity funds into their portfolios. This strategy can help reduce volatility and potentially enhance overall returns.
Disclaimer
The information contained herein does not constitute an offer, invitation or solicitation to invest in Asia Vision Capital (“AVC”)). This article has been reviewed and endorsed by the Chief Investment Officer (CIO) of AVC. This article has not been reviewed by The Securities Commission Malaysia (SC). No part of this document may be circulated or reproduced without prior permission of AVC. This is not a collective investment scheme / unit trust fund. Any investment product or service offered by AVC is not obligations of, deposits in or guaranteed by AVC. Past performance is not necessarily indicative of future returns. Investments are subject to investment risks, including the possible loss of the principal amount invested. Investors should note that the value of the investment may rise as well as decline. If investors are in any doubt about any feature or nature of the investment, they should consult AVC to obtain further information including on the fees and charges involved before investing or seek other professional advice for their specific investment needs or financial situations. Whilst we have taken all reasonable care to ensure that the information contained in this publication is accurate, it does not guarantee the accuracy or completeness of this publication. Any information, opinion and views contained herein are subject to change without notice. We have not given any consideration to and have not made any investigation on your investment objectives, financial situation or your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any persons acting on such information and advice.
