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  /  Article   /  Market Review April 2023

Market Review April 2023

For the month of March 2023, the MSCI Far East ex-Japan Index gained 3.67%, compared to the MSCI World Index’s 2.83% gain. The Far East ex-Japan markets outperformed on the back improved sentiment in Chinese risk assets. The ASEAN Index underperformed. Markets that performed relatively better were China H shares (+5.89% in local currency term), Vietnamese shares (+3.90%) and Korea shares (+2.65%), while the laggards were Malaysia shares (-2.17%), China A shares (-0.46%) and Philippines shares (-0.86%). Regional currencies appreciated against the USD. The best performing currencies were Thai Baht (+3.07%) and Philippine Peso (+1.75%), while the laggards were Taiwan NT (+0.25%) and Chinese Yuan (+0.89%), although they still appreciated against the USD.

Major US indices gained on expectation of the Federal Reserve (Fed) becoming less hawkish given a more benign inflation figure and banking sector turmoil. The Fed raised the rate by 25 bps for the month, which was within market expectation. The headline consumer price index (CPI) lowered to 6.0% in February from 6.4%. Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq Composite returned +1.89%, +3.51% and +6.69% respectively. The technology sector outperformed significantly as investors shifted exposure from financial sector.

The Stoxx Europe 600 Index declined 0.71%. The European Central Bank raised its policy rates by 50 bps in the month. The recessionary concerns continued to subside. The Markit Manufacturing Purchasing Managers’ Index (PMI) declined from 48.5 to 47.3, while Services PMI increased from 52.7 to 55.0, and the composite PMI increased from 52.0 to 53.7. Eurozone headline inflation eased from 8.5% YoY in February to 6.9% YoY in March.

Hong Kong and H shares indices gained, with Hang Seng Index and Hang Seng China Enterprises Index gaining 3.10% and 5.89% respectively. China’s A shares index declined 0.46%. China’s economic activities continued to recover. The manufacturing purchasing managers’ index eased to 51.9 in March from 52.6 in February, but remained above the 50 mark that signals expansion. The non-manufacturing gauge of activity in both the services and construction sectors surged from 56.3 in February to 58.2 in March, the highest level since May 2011.

South Korea’s KOSPI Index gained 2.65% despite increased geopolitical risk. North Korean tested weapons designed to deliver nuclear strikes against the US and its allies. It was reported to have tested an underwater drone that cruised for nearly 60 hours off its east coast before detonating. South Korea’s domestic economy is facing escalating overdue payments for both mortgages as well as credit loans amid the ongoing high interest rate trend. Delayed payments on mortgage loans have surpassed W1tr (US$775m, +55% YoY) and unsecured credit loans are renewing historical highs, creating concerns for overall domestic financial institutions.

Taiwan’s TWSE Index gained 2.35%. Taiwan export orders totalled US$42.12bn in February, down 11.4% MoM (down 7.6% seasonally adjusted) and down 18.3% YoY, surpassing consensus of 17.5% YoY decline. Orders from the US fell 12.6% YoY, with electronics down US$1bn, or 8.9% YoY; orders from China and Hong Kong were down 35.5% YoY, with electronics orders down US$6.25bn, or 42.7% YoY, and optical instruments were down US$1.71bn, or 52.6% YoY. Orders from Europe were down 13.1% YoY, with ICT orders surprisingly up the most by 18%, while orders from ASEAN fell 17.1% and those from Japan were up 5.5% YoY.

Singapore’s STI declined 0.11%. Singapore’s annual inflation rate eased to 6.3% in February from 6.6% in the previous month. It was the smallest reading since May 2022 due to the slowdown in transport prices (9.7% vs 11.9% in January. Manufacturing production fell by 8.9% YoY in February.

Malaysia’s KLCI declined 2.17%. The annual inflation rate in Malaysia came in at 3.7% in February, unchanged from the previous month and slightly higher than market forecasts of 3.6%. The latest figure has remained at its lowest level since June 2022. The S&P Global Malaysia Manufacturing PMI edged higher to 48.8 in March from 48.4 in February. The latest reading indicated that Malaysia was in the 7th straight month of contraction in the manufacturing sector.

Thailand’s SET Index declined 0.81%. The central bank of Thailand raised its key interest rate by 25 bps to 1.75% during its March 2023 meeting. Thailand’s trade balance swung to deficit of USD 1.11 bn in February 2023 from a surplus of USD 0.12 bn in the same period a year earlier, as exports fell while imports rose. Shipments declined by 4.7% YoY, the fifth straight month of drop, amid a further deterioration in foreign demand.

Jakarta Composite Index declined 0.55%. Indonesia export grew by 4.51% from a year earlier to USD 21.40 bn in February 2023, easing sharply from a marginally revised 16.43% jump in the previous month, and below market consensus of a 5% rise. It was the 28th straight month of increase in exports, but the softest pace since June 2020, due to easing commodity prices amid weakening global demand.

The Philippines PSE Index declined 0.86%. Economic activities were sluggish. Philippines export shrank 13.5% YoY to a 32-month low of USD 5.23 billion in January 2023, after a downwardly revised 7.7% fall in December 2022. It was the second straight month of decline and the steepest drop since May 2020 due to further deterioration in foreign demand as the risks of economic slowdown persisted. The central bank of the Philippines raised its overnight borrowing rate by 25bps to 6.25% during its March 2023 meeting,

Vietnam’s VN-Index gained 3.90% on bargain hunting driven by retail trading . Vietnam’s gross domestic product advanced 3.32% YoY in Q1 of 2023, softer than a 5.92% rise in Q4 of 2022 and pointing to the sixth consecutive period of expansion.

The severity of global economic recession concerns continued to worry global investors. Hightened geo-political uncertainies have also affected investor sentiments. The outlook on interest rate trend and expectation on the Fed’s rate decisions will continue to have a major influence on investors’ investment decisions on risk assets. The easing of inflation rate in recent months has lifted investors’ sentiment. The US headline consumer price index (CPI) continued to ease with the latest reading at 6.0% in February.  The threat that the failure of several regional banks in the US may develop into a larger financial crisis seemed to have raised market expectation that Fed would be less hawkish. Given the various forces at play, the market can be expected to remain volatile.

The market corrections in recent periods present opportunities, especially in Asia ex. Japan, in particular Chinese equities on depressed valuation. The positive impacts of expansionary Chinese policies to support economic activities, the pivot from the zero-Covid strategy and resumption of normalized business operating environment were viewed positively by the market.

We remain watchful of developments in the Russia-Ukraine conflict as well as policy directions in the major economies, in particular US and China, which will have major implications on economies in general as well as on specific sectors.  US economic and inflation data and policy responses in terms of rate hikes in 2023 will affect market sentiments and liquidity, not just in the US but world wide. The market seems to have factored in a peak in interest rates in 2023, though risk persists. In Asia, the focus is on China’s policy measures to spur economic activities, revive growth in the property sector, and hasten the pace of economic growth.

While we are more cautiously optimistic, there remains headwind for risk assets, including high interest rate and slower economic activities in 2023, as well as the still relatively high valuations in the developed markets. The continuing geo-political tension between China and US, and that between US/Europe and Russia over Ukraine will keep risk premium elevated at times and result in markets volatility.

We continue to apply our strategy of focusing on identifying fundamentally healthy companies with low valuations, low leverage, high growth, robust management and a strong track record, and adherence to our investment philosophy of “Never Fully Invest at All Times” which has served us well over the years. We are also in the midst of developing a robust ESG investment framework to meet the increased expectations of investors and other stakeholders.

We thank you once again for your continued faith in us, and hope to remain good stewards in our endeavour to protect and grow your capital.

This article is solely for information purposes. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, investment product or service. The information contained herein does not have any regard to the specific investment objectives, financial situation or particular needs of any person. Investors may wish to seek advice from a financial advisor before making any investment decision. Past performance is not indicative of future results. An investment is subject to investment risks, including the possible loss of the principal amount invested.