Executive Summary

As Market Bets Big on AI, Diversification is Crucial

In October, the International Monetary Fund (IMF) upgraded global GDP growth forecast to 3.2% for 2025 up 0.2% from earlier forecast. Projection for 2026 was kept unchanged. Advanced and emerging/developing economies are projected to grow 1.6% and 4.2% in 2025, respectively up from 1.5% and 4.1% earlier.  Lower U.S. tariffs, front loading of U.S.-bound exports, monetary and fiscal expansion underpinned the upgrade. Global inflation is projected to soften to 4.2% and 3.7% in 2025 and 2026, respectively largely unchanged from prior forecasts.  Global trade volume projections was significantly upgraded to 3.6% and 2.3% from 1% and 0.4% for 2025 and 2026, respectively as trade deals bring greater clarity. 

The FED has finally resumed monetary easing by cutting policy rate at the September FOMC meeting by 25bps as labor market begins to crack. Unemployment rose to 4.3%. The 911k downwardly revised NFPs in twelve months to March 2025 revealed the U.S. economy actually created a net 71k jobs per month during the period. This marks a significant 52% reduction from the initial numbers. Market expects the FED funds rate to settle between 2.75-3% by end-CY26 (125bps lower) as FED looks to protect the labor market despite short-term tariff-driven inflationary pressure. In an effort to shore up liquidity, FED Chair Powell mentioned the current USD480 billion annual quantitative tightening (QT) may soon end.  September inflation read continues to hover above FED’s 2% target. CPI and core CPI rose 3%YoY. The FED faces a dilemma where the dual mandates are in contention amid an increasingly convoluted and dynamic economic outlook. 

The latest dot-plot suggests a total of 50bps of incoming rate cuts for CY25 with 25bps cut each in October and December.  The FED slightly raised both CY25 and CY26 U.S. economic growth from 1.4% and 1.6% to 1.6% and 1.8%, respectively. CY25 core PCE forecast was kept unchanged at 3.1% but was upgraded to 2.6% from 2.4% for CY26. The FED is prioritizing risks to the labor market over term-term prices.  The Trump administration expects 300k federal employee reduction by year-end amounting to 12.5% of the federal workface ex. postal service. President Trump interference in federal agencies potentially lessen data sanctity and threatens the FED’s independence.  An appeals court ruled earlier that FED Governor Lisa Cook could keep her job. The next legal battle will be waged in the Supreme Court.

Japan and EU has successfully negotiated trade agreements with the U.S. A 15% tariff on goods exports are applied to EU and Japan in exchange for binding energy purchases and investments. Certain goods categories may see lower or higher tariffs subject to further negotiations. A 55% tariffs is currently applied to Chinese exports down from 145% earlier. However, President Trump threatens China with an additional 100% tariffs starting Nov 1st if negations centered largely on rare earth exports proves unsatisfactory. India faces a massive 50% tariff as Trump zeroes in on Russian energy purchase. Two of the U.S. largest trading partners Mexico and Canada are hit with 25% and 35% tariffs, respectively on goods outside of the USMCA. Negotiations are still ongoing.

After eight consecutive rate cuts, the ECB held rates unchanged for the second consecutive meeting. The ECB upgraded GDP growth forecast for CY25 to 1.2% from 0.9% but sees slight GDP growth downshift for CY26 to 1% from 1.1% earlier.  The ECB’s asset purchase program (APP) and pandemic emergency purchase program (PEPP) no longer reinvests principal payments from maturing securities.  The ECB is embarking on aggressive easing pivot to bolster meager economic growth amid challenged external demand.

After slashing policy rate three times this year, the BOE voted by a majority of 7–2 at the September meeting to maintain policy rate 4%. The door for one additional rate cut this year remains open should inflationary pressures prove transitory. The BOE also decided to reduce the size of its annual quantitative tightening (QT) program to GBP70 billion, a 30% reduction from the prior year. CPI and core CPI remained above the BOE’s target in September rising by 3.8%YoY and 3.5%YoY, respectively.  CPI was projected to remain around 3.75% over the course of 2HCY25. 

The BOJ voted 8-1 to hike policy rate by 25bps to 0.5% in January to a 17-year high and has held rate steady since.  BOJ’s July economic outlook sees core CPI between 2.8% and 3.0% in 2025, higher than its prior forecast of 2.2% and 2.4%. Inflation has persistently hovered above the 2% BOJ’s target. Market sees BOJ hiking once more in 2025 after the bank held rate steady in September.  The BOJ raised 2025 GDP forecast to a range of 0.5% to 0.7% from 0.4% to 0.6%. China’s GDP grew 5.2%YoY in the first three quarters. However, Q3 growth fell to 4.8% pressured by lower fixed asset and property investments.  

India’s GDP slowed to 6.5% in FY25 due mainly to the contraction in government spending after a robust 9.2% growth in FY24.  India’s benchmark equity index, remains slightly below all-time-high. After slashing policy rate by a cumulative 100bps since the start of 2025 the RBI held policy rate steady at the latest meeting. A projected rise government spending, moderating inflation and tax relief has sparked optimism. Moreover, with real interest rate as high as 3-4% the RBI has plenty of room to maneuver policy rate lower. The RBI hiked FY26 growth forecast to from 6.5% to 6.8% as monetary and fiscal stimulus bolster economic momentum ...

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MONTHLY INVESTMENT UPDATE November 2568

Executive Summary by Arun Pawa, IP, FM, IA, Investment Strategist 

CIMB Thai Bank (CIMBT)