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  /  Article   /  Market Review December 2023

Market Review December 2023

Risk assets staged a strong comeback in November 2023 on optimism over interest rate outlook, with the markets in Far East ex-Japan, as a whole, lagging the developed markets.  The MSCI Far East ex-Japan Index gained 6.93%, while the MSCI World Index advanced 9.21%. Among the Far East ex-Japan markets, Korea and Taiwan performed particularly well, while Chinese equities were downbeat. The ASEAN Index gained 3.87%, without significant flow through of risk on sentiments seen in the developed markets. Markets that performed well were Korea (+11.30% in local term), Taiwan (+8.95%) and Vietnam shares (+6.41%), while the laggards were Chinese H shares (-0.41%), Hong Kong shares (-0.07%) and China A shares (-2.41%), Thailand shares (-0.12%). Regional currencies were mostly stronger against the USD. The best performing currencies were Korean Won (+4.70%) and Taiwan NT (+3.61%), while the laggards were Vietnamese Dong (+1.25%) and Malaysia Ringgit (+2.19%).

Major US indices advance strongly after a few months of weakness.  The market rebounded on optimism over interest rate outlook as headline and core inflation continued to soften. Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq Composite returned +8.77%, +8.92% and +10.70% respectively. The market was particularly encouraged by the release of the US Consumer Price Index (CPI) reading for October, which was cooler than expected. Headline and core inflation dropped to 3.2% YoY (September: 3.7%) and 4.0% YoY (September: 4.1%) respectively. The biggest driver of the decline was a fall in energy and gasoline prices, followed by lower travel costs and hotel rates. Despite the ongoing conflict in the Middle East, the price of a barrel of Brent crude oil fell to US$80, in part thanks to an increase in US supply and OPEC+ members’ failure to adhere to production quotas.

The Stoxx Europe 600 Index gained 6.45% amidst risk on sentiment. In Europe, Eurostat’s flash CPI release for November showed headline and core inflation slowing to 2.4% YoY and 3.6% YoY respectively. Lower energy prices were the major contributor to the fall, but within the core print both goods and services inflation also eased. European industrial production and manufacturing activity remained depressed, mainly due to poor data from Germany and France. However, eurozone Q3 employment growth was robust, rising 0.3% quarter on quarter (QoQ).

Hong Kong and H shares indices underperformed on continued foreign fund outflows. Hang Seng Index declined 0.41%, while Hang Seng China Enterprises Index gained marginally 0.12% on soft economic activities. China’s A shares index gained 0.35%. China’s manufacturing activity unexpectedly shrank in October. The Caixin manufacturing purchasing managers’ index fell to 49.5 from 50.6 in September, missing economists’ forecast of 50.8. The disappointing numbers underlined the fragility of the economic recovery and fueled calls for more policy support.

South Korea’s KOSPI Index surged 11.30%, reflecting buoyant sentiment on risk asset and optimism on export growth outlook. Industrial Research Institute foresees Korea’s export growth of 5.6% next year, hitting a US$26.5bn surplus, led by semiconductors and autos. GDP growth for 2024 is projected at 2.0%, better than the 1.4% projected for 2023. However, inflation, high-interest rate and weakened consumer spending remain as concerns.

Taiwan’s TWSE Index chalked up a strong 8.95% gain on global technology index strength. Taiwan’s exports resumed weakness in October, declining 4.5% YoY. The Consumer price index rose 3.05% YoY in October, faster than the 2.93% growth recorded in the previous month, according to data released by the Directorate General of Budget, Accounting & Statistics. There is strong optimism that Taiwan’s GDP will rebound in 2024 to reach a growth rate of 3.15%, according to the Taiwanese Institute of Economic Research (TIER).

Singapore’s STI gained 0.17%. Singapore’s NODX shrank by 3.4% YoY in October, better than forecasts of a 6.5% drop after a 13.2% fall in September. It was the 13th consecutive month of contraction, but the softest reduction in the sequence, due to a softer drop in electronic and non-electronic products. On a seasonally adjusted basis, NODX grew 3.4% in October, following an 11.1% jump in September, above forecasts of a 1.5% growth.

Malaysia’s KLCI gained 0.74%.  Economic activities remained benign. The manufacturing industry in Malaysia operated at 79.4% capacity utilization in the third quarter (Q3), declining by 1.9% YoY as compared to 81.3% a year ago, official data showed. The lower capacity utilization rate recorded in Q3 was in line with the production of manufacturing output, indicated by the marginal decline of 0.1% in the industrial production index.

Thailand’s SET Index declined 0.12%. The consumer confidence index increased for the third month in a row to 60.2 in October 2023, up from 58.7 the previous month. The reading was the highest since February 2020, attributable mostly to government stimulus initiatives, increased international visitor arrivals, and stronger exports. The tourist industry has continued to contribute to the economy, with the government projecting at least 26 to 27 million foreign visitors in 2023.

Jakarta Composite Index gained 4.87%. The Consumer Confidence Index (CCI) rebounded to 124.3 in October from 121.7 in September. The increase in CCI was mainly driven by the lower-income groups (those with less than IDR3.1million monthly income), which saw an increase to 113 from 109 in September, likely helped by acceleration in government spending, including social spending. Meanwhile, the high-income segment registered a modest improvement to 134.7 from 133.7.

The Philippines PSE Index gained 4.18%. The Philippine GDP growth accelerated to 5.9% YoY in the third quarter, up from a 4.3% growth in the previous period and beating market forecasts of a 4.7% rise. The annual inflation rate also eased to a three-month low of 4.9% in October 2023 from 6.1% in September and below market forecasts of 5.6%.

Vietnam’s VN-Index gained 6.41% on bargain hunting from retail investors. Industrial production (IIP) increased 5.8% YoY in November, the highest level in nine months, lifting IIP growth in 11M 2023 to 1.0% YoY. Trade data remains healthy with exports and imports posting positive growth for the third consecutive month. Exports grew 6.7% YoY and imports grew 5.1% YoY. In 11M 2023, exports and imports still declined 5.9% YoY and 10.7% YoY to USD322.5bn and USD296.7bn, respectively, resulting in a trade surplus of USD25.8bn (vs USD10.3bn in 11M 2022).

After many months of rate hikes by the US Fed to beat inflations,  the easing of inflation rate in recent months has raised market expectations that that rates may start to fall, although the Fed has yet to change its “higher for longer” interest rate guidance.   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. Meanwhile, investors are pricing in lower interest rate environment as early as second half of 2024. This has kept investment sentiment buoyant.

We remain watchful of geo-political developments as well as policy directions in the major economies, in particular US and China.  The new geo-political risk arising from the 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 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 will have positive catalyst for the 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.

While we are cautiously optimistic, there remains headwind for risk assets, including continuation of high interest rate and its impact on economic activities, and slower than expected economic growth in China, as well as the still 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 market corrections in 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.