Market Review August 2024
Risk assets performance was mixed in July 2024. The Far East ex-Japan index underperformed vis-a-vis the developed markets. The MSCI Far East ex-Japan Index declined 1.84%, while the MSCI World Index gained 1.70%. Among the Far East ex-Japan markets, ASEAN equities performed well with a return of 4.82%. Appreciating currencies attracted fund flow into Asean markets. Singapore shares (+3.69%) and Indonesia shares (+2.72%) were the top performers in July. The laggards were Taiwan shares (-3.62%) and Chinese H shares (-3.55%). Regional currencies were strong against the USD with exception of Taiwan NT. The best performing currencies were Thai Baht (+3.42%), Malaysia Ringgit (+2.74%) and Singapore dollar (+1.49%), while the weaker ones were Taiwan NT (-1.18%) and Philippines Peso (+0.38%).
Major US indices performance was mixed. The technology sector corrected following uninspiring result announcements. The economy remained resilient. However, there were signs of weakness, prompting optimism for reduction of interest rate. Dow Jones Industrial Average (DJIA) and S&P 500 were up 4.41% and 1.13% respectively, while Nasdaq Composite corrected 0.75%. US core inflation remained at comfortable level of 2.6% year-on-year in June, but it is still above the Fed’s long-term target of 2.00%. The US composite Purchasing Managers’ Index (PMI) remained firm at 54.3 in July compared to 54.8 in June, suggesting overall activity continued to expand. However, US manufacturing PMI was down to 46.6 from 48.5 a month ago, reflecting contraction in factory activity.
The Stoxx Europe 600 Index gained 1.32%. In the eurozone, a disappointing PMI print, which indicated a slight tempering of eurozone economic growth over the summer, coupled with uncertainties around the French election, likely contributed to softer investors’ sentiment. The PMI weakened in July to 50.2 versus 50.9 in June.
Hong Kong and H shares indices continued to decline on concerns over weak Chinese economy. Hang Seng Index, Hang Seng China Enterprises Index and China’s A shares index returned decrease 2.11%, decreased 3.55% and increase 0.57% respectively. Data released by the National Bureau of Statistics showed that China’s Gross Domestic Product (GDP) expanded 4.7% in the second quarter from the same period a year earlier. That missed the median estimate of 5.1% in a Bloomberg survey of economists. Growth in the first half was 5%, in line with Beijing’s annual target of around 5%. China’s exports rose but fell below market expectations in July, and analysts predicted growth would likely decline in the next few months due to the relatively higher base effect, a possible decline in overseas demand and the implementation of tariffs by the US and EU.
South Korea’s KOSPI Index declined 0.97%. South Korea’s GDP for the April-June period fell 0.2% from a quarter earlier in seasonally adjusted terms, missing a 0.1% gain expected by the market. It was the sharpest fall since the fourth quarter of 2022. Export showed strength as it accelerated in July as growth picked up to 18.2% from 5.1% in June.
Taiwan’s TWSE Index declined 3.62% on profit taking on muted earnings reports from global technology companies. Preliminary government data showed that GDP in the second quarter grew by 5.09% year-on-year, lower than an earlier forecast of 5.18% made in May. The economic number gave investors excuse to take profit despite strong corporate earnings from TSMC.
Singapore’s STI gained 3.69% on positive banking sector results. S&P Global Singapore’s PMI rose to 55.2 in June 2024 from 54.2 in the previous month, marking the fastest expansion in three months. Business activity grew at its quickest rate in 20 months due to a significant increase in new business, driven by stronger underlying demand and business development efforts by Singaporean firms.
Malaysia’s KLCI gained 2.23% on strong domestic fund support amid buoyant sentiment. Malaysia’s economy is estimated to have grown by 5.8% in the second quarter (Q2) of 2024 compared to a year earlier, driven by the services sector and a recovery in exports. This follows a 4.2% growth in Q1. The services sector grew by 5.6%, with significant contributions from wholesale and retail trade, transportation and storage, and finance and insurance.
Thailand’s SET Index gained 1.53% on bargain hunting despite political uncertainty. Economic activities improved. The S&P Global Thailand Manufacturing PMI increased to 51.7 from 50.3 in May, marking the second consecutive month of expansion and the highest reading since June 2023. Output grew at the fastest pace since May 2023, well above the long-term survey average.
Jakarta Composite Index continued to gain momentum, adding 2.72% on domestic bargain hunting. The Ministry of Finance raised its 2024 fiscal deficit target to 2.70% of GDP from the initial 2.30% due to higher spending. This implies a higher deficit financing of IDR 609.7tn from IDR 522.8tn (2023: IDR337tn). Government spending is fixed at IDR 3,412tn (15.1% of GDP) in 2024, a 2.6% increase from the original budget or an increase of 9.3% year-on-year. This will help to boast domestic economic activities.
The Philippines PSE Index gained 3.23%. The annual inflation rate in the Philippines edged down to 3.70% in June 2024, compared to May’s five-month high and market estimates of 3.90%. This marked the lowest inflation rate since March, as prices slowed for housing & utilities (0.10% vs 0.90% in May) and transport (3.10% vs 3.50%). The unemployment rate in the Philippines edged down to 4.10% in May 2024 from 4.30% in the corresponding month of the previous year.
Vietnam’s VN-Index gained 0.50%. On the economy, FDI disbursements for first seven months increased 8% year-on-year to USD12.6bn (July +10% year-on-year to USD1.7bn) representing the highest level since 2012. 7MFY2024 FDI registrations were up 11% year-on-year to USD18.0bn (July +0% year-on-year to USD2.8bn). Singapore led FDI registrations, accounting for 36% of the total, followed by Hong Kong (12%), Japan (11%), China (9%) and South Korea (9%).
After many months of rate hikes by the US Fed since 2022 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. 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. While the latest inflation data remained sanguine, and the 12-month rate of price increase has slowed to 2.6%, it was still above the Fed’s 2% target, and the Fed had indicated that it would wait to see more inflation and labour market data before deciding on any rate cut. Market attention is focused on the Fed’s rate decision at its meeting in September.
So far, resilient US economic data and the prospect of US rate cuts have boosted investor sentiments and pushed the US stock market higher, breaching new historical high. Investors have been pricing in expectation of a lower interest rate environment as early as second half of 2024. This, coupled with corporate earnings reports that have so far been better than expected, has kept investment sentiment buoyant, despite the US market’s elevated valuation and continuing geo-political tensions. Some observers have pointed to some downside risks to economic activity. Any adverse change in the US economic growth trajectory and its consequent effect on corporate earnings would have significant impact on the market. Escalation of geo-political conflicts could also have major adverse implications for the markets.
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. Adding to the market uncertainties will be whether it will be Donald Trump or Kamala Harris who will emerge winner in the November 4 US Presidential election, and what it will mean in terms of US economic and foreign policy changes. 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 continues to bring forth various measures to help the economy. 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 historically high market valuations in the US. The continuing geo-political tension in Europe, Middle East and in East Asia 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 should supportive and expansionary Chinese policies to bolster economic activities meet with success.
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.