March 2025 Market Outlook
U.S. President Donald Trump signed 3 executive orders imposing 25% tariffs on all goods from Canada, Mexico and China on 1st February 2025, and the following day the S&P 500 fell 1.76%, its worst day since December 2024.
Here’s the summary:
- The U.S. has imposed a 25% tariff on imports from Canada and Mexico, impacting over USD 900 billion in annual trade. In response, on 4th February 2025, Canada implemented tariffs on USD 20.8 billion (CAD 30 billion) worth of American goods, with an additional USD 86.8 billion (CAD 125 billion) set to follow in three weeks.
- Europe is next in line. Beginning April 2025, the U.S. will be imposing 25% duties on European imports such as aircraft, agriculture, industrial goods and spirits. Europe has vowed to retaliate with its own tariffs on American goods if these measures come into effect.
- Across the Pacific, Trump has doubled existing tariffs on Chinese goods from 10% to 20%, strategically announcing the move during China’s most important political meeting of the year. In response, Beijing has implemented 10% to 15% tariffs on U.S. agricultural products.
China’s tech stocks are experiencing a surge, with industry giants like Alibaba, Tencent, and Baidu basking in newfound optimism following Deep Seek’s revival of market sentiment. This shift marks a stark contrast to the years of scepticism, regulatory crackdowns, and sluggish consumer demand that had weighed heavily on the sector. Now, tech stocks in Hong Kong appear to be leading the charge in a broader recovery across the Chinese market.
Meanwhile, the U.S. dollar (USD) saw notable volatility over the month. At the beginning of February 2025, USD/MYR was at 4.4500, then dropping down to 4.3500 before climbing back up and closing at 4.4600 at the end of the month.
U.S. Treasury yield fluctuated significantly, with the 10-year yield climbing above 4.600% mid-month before easing back to 4.304% by month-end, showing little net change. These movements were driven by concerns over fiscal policy, softer economic data, and ongoing geopolitical uncertainties.
Gold price surged by 1.25% last month, reaching an all-time high of USD$2,974.00 per ounce. With a 12% increase since the beginning of the year, gold has clearly outperformed U.S. stock markets. This rally was fuelled by heightened uncertainty, fears of inflation due to President Trump’s tariff threats, and rising demand from central banks.
Closer to home, on 1st March, the Employees Provident Fund (EPF) announced a 6.3% dividend for 2024, surpassing last year’s 5.5%, and outpacing the ten-year average of 5.9%. According to their 2024 portfolio allocation, EPF maintains a balanced mix of 46% in bonds and 42% in equities, complemented by geographic diversification. This nearly even split helps safeguard capital while taking risks, aligning with EPF’s mandate as a retirement fund. Of its MYR 1.25 trillion fund, 67% is invested domestically in Malaysia, while the remaining 33% is allocated overseas.
Investors can gain valuable insights from EPF’s approach. Key takeaways include the importance of diversifying across asset classes to optimize risk-adjusted returns and adopting a long-term investment mindset focused on retirement, two core principles of successful investing.
Given the current market uncertainties, volatility is to be expected. A 10-year study by SPIVA, in 2024, revealed that 85% of actively managed funds underperform the passive funds. Its research shows that asset allocation accounts for up to 90% of a portfolio’s return. When the U.S. market stumbles, investments in other regions might need to remain cautious and resilient. Similarly, when equities fluctuate, bonds often serve as a stabilizing force. Two main rules in investing is about “time in the market, not timing the market” and “diversification”.
This is not just theory it plays out in real markets. For example, during the 2022 market sell off, U.S. equities lost over 19%, while commodities gained 22%. When the dot-com bubble burst, the NASDAQ plummeted more than 70%, but bonds gained over 30%. These are not outlier cases but rather demonstrate how different asset classes respond to similar economic environments in diverse ways.
Source: LSEG Data stream
A well-designed asset allocation strategy not only spreads risk but also ensures each asset class performs to its strengths. Equities across regions drive long-term growth, while bonds provide yield and stability. Meanwhile, real estate funds act as a hedge against uncertainty, often thriving when volatility increases, exactly the climate we’re in today.
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