Market Review April 2024
Risk assets, particularly in developed markets, continued to move higher in March 2024 with US equities registering yet another new high. The Far East ex-Japan index underperformed the developed markets. The MSCI Far East ex-Japan Index gained 2.32%, while the MSCI World Index advanced 2.98%. Among the Far East ex-Japan markets, ASEAN equities lagged with a return of -0.58%, while Taiwan shares (+7.00% in local term) and Korea shares (+3.95%) performed well. Chinese H shares (+2.34%) managed to chalk up some gains, after a strong rise in February. The laggards were Indonesia (-0.37%), Malaysia (-0.99%) and the Philippines (-0.59%). Regional currencies were mixed against the USD. The best performing currencies were Malaysia Ringgit (+0.38%) and Phil Peso (+0.02%), while the weaker ones were Thai baht (-1.35%) and Taiwan NT (-1.19%).
Major US indices continued to advance. The market held up on renew optimism over potential interest rate cut as latest core inflation reading came in below market expectation. The Fed reiterated its outlook for three 25-bp rate cuts this year while awaiting more data to provide more confidence on inflation trend. Economic data released over the month also pointed to continued strong domestic economy. Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq Composite returned +2.08%, +3.10% and +1.79% respectively. US core inflation remained stable at 2.8% YoY in February. Economic data also proved resilient. The US composite Purchasing Managers’ Index (PMI) recorded 52.1 in March, suggesting activity continued to expand over March, while the US economy added 275,000 jobs in February.
The Stoxx Europe 600 Index gained 3.65%, tracking the developed markets. Inflation in the 20-nation euro zone eased to 2.4% in March, boosting expectations for interest rate cuts to begin in the summer. The core rate of inflation, excluding energy, food, alcohol and tobacco, cooled from 3.1% to 2.9%, also coming in below expectations. However, overall manufacturing activity in the euro zone took a further turn for the worse in March, contracting at a steeper pace than in February. The euro zone manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, dipped to 46.1 in March from February’s 46.5, better than a preliminary estimate of 45.7. However, it has stayed below the 50 mark for the 21st month.
Hong Kong and H shares indices stayed on green on the back of mixed corporate earnings announcements which heightened trading volatility. Hang Seng Index gained 0.18%, while Hang Seng China Enterprises Index and China’s A shares index gained 2.34% and 0.61% respectively. China’s manufacturing activity recovered in March. The March China manufacturing purchasing managers’ index came in at 50.8 with strong uptick in new export orders. It was the first time in six months that the index has gone above 50. However, sentiment remains fragile as investors question its sustainability.
South Korea’s KOSPI Index gained 3.95%. South Korea’s exports rose for the sixth consecutive month in March on the back of the robust performance of chips. Exports of chips jumped 35.7% YoY in March to US$11.7 billion, growing for five consecutive months. However, the manufacturing activity weakened in March as slowing domestic demand offset robust overseas sales.
Taiwan’s TWSE Index continued to advance with a gain of 7.0% on strength and optimism over semiconductor sector fueled by AI theme. Taiwan’s central bank announced an interest rate hike of 12.5bps at the 1Q24 monetary policy meeting on March 21, bringing the benchmark rediscount rate to 2%. However, the February export orders were below expectations. Taiwan export orders totaled US$37.73bn in February, down 22.1% MoM, down 1.1% QoQ when seasonally adjusted, and down 10.4% YoY, far below consensus of 1.2% YoY growth.
Singapore’s STI recovered and gained 2.62% on bargain hunting. Singapore’s annual inflation rate increased to 3.4% in February due mainly to a faster rise in housing and food prices. Consumer prices rose by 1.0% in February, the most in 15 months, rebounding from a 0.7% fall in the prior month. Singapore’s manufacturing production grew 3.8% YoY in February, following a downwardly revised 0.6% gain in the previous months, easily beating market expectations of a 0.5% rise.
Malaysia’s KLCI declined 0.99% on profit taking. Economic activities will remain strong in 2024, according to the Economic and Monetary Review 2023 report, which sees household spending bolstered by sustained employment and wage increases. Tourist arrivals and expenditures are anticipated to see further improvement. The country’s growth will be driven mainly by resilient domestic expenditure, with additional support emanating from the expected recovery in exports.
Thailand’s SET Index continued to weaken, declining 0.53%. Thailand’s February exports grew 3.6% YoY to reach US$ 23.38 billion, slightly below market expectations of 4.4%. Industrial production witnessed a decline of 2.84% YoY in February 2024. It was, better than the market expectations of a 3.9% decrease, and a slight improvement from the 2.94% decline observed in January.
Jakarta Composite Index declined 0.37%. Bank Indonesia in its March meeting maintained the BI Rate at 6.00%, the Deposit Facility interest rate at 5.25%, and the Lending Facility interest rate at 6.75%. The decision to maintain the BI Rate remained consistent with the focus of maintaining the stability of the Rupiah exchange rate and to keep inflation under control within the target of 2.5 ± 1% in 2024.
The Philippines PSE Index declined 0.59% on profit taking. Inflation rose in February with CPI increasing to 3.4% (versus: 2.8% in January) and the market expects inflation to remain sticky going forward due to EL Nino affecting food prices. On the positive, manufacturing activity expanded in February to 51.0 (versus: 50.9 in January), remaining in the expansionary mode.
Vietnam’s VN-Index continued to strengthen with a gain of 2.50%. The Ministry of Finance and the Vietnam Securities Commission (SSC) are actively collaborating with market participants to work on the pre-funding requirement removal, with a priority to have Vietnam upgraded to the FTSE Emerging basket by 2025. Under current regulations, foreign investors must fully fund their trading accounts in Vietnam before they could start securities purchase. The SSC is drafting amendments to Decree 120 on securities trading to eliminate the pre-funding requirement. These measures boosted investors’ sentiment.
After many months of rate hikes by the US Fed to beat inflations, the easing of inflation rate in the US in recent months has raised market expectations that that rates may start to fall. Fed officials have provided forecasts of several rate cuts in 2024, although whether this will materialize will depend on the economic data when the time comes. The market has been hopeful of rate cuts starting as early as March, but the prospect of this happening has been pushed back to the second half of 2024.
So far, resilient US economic data, good corporate results from big US techs, the plays on companies benefiting from AI and the prospect of US rate cuts have boosted investor sentiments and pushed the US stock market higher, breaching new historical records.
US economic and inflation data, and expectation on, and Fed’s rate decisions, will continue to have a major influence on investors’ investment decisions on risk assets in US and elsewhere. Investors are pricing in a lower interest rate environment as early as second half of 2024. This, coupled with better than expected earnings reports and an economy that is more resilient than expected, has kept investment sentiment buoyant, despite the US market’s elevated valuation and continuation of geo-political tension.
We are watchful of geo-political developments as well as policy directions in the major economies, in particular US and China. The continuing Israel-Hamas conflict, and the risk that it may potentially spread in the Middle East, has added to the uncertainties. US economic and inflation data and interest rate policy responses will affect market sentiments and liquidity. In the run up to the UJS Presidential election in November, Increasing attention will also be focused on who will win the race, and how it will affect the US policies. In Asia, the focus is on the pace of China’s economic recovery which has been weaker than expected. The Chinese property sector continues to face severe challenges, and any sign of stabilization and growth will have positive catalyst for China’s economy and risk assets. The Chinese government has announced various support measures to help the economy, and the market expectation is that more will be required, and it may take time for the initiatives to bear fruits.
While we are cautiously optimistic, there remains headwind for risk assets, including continuation of high interest rate and its impact on business and economic activities, and slower than expected economic growth in China, as well as the relatively high valuations in the developed markets. The continuing geo-political tension in Europe and in East Asia, and the new conflict in the Middle East will keep risk premium elevated at times and result in markets volatility. We will be watchful on these.
The prolonged sell down of Chinese equities and their depressed valuation may offer potential upside on expansionary Chinese policies to support economic activities.
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 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.