Market Review February 2024
Risk assets were off to a muted start in January 2024 with Chinese equities continuing to be a drag for Asia equities. The Far East ex-Japan index lagged the developed markets. The MSCI Far East ex-Japan Index declined 7.39%, while the MSCI World Index advanced 1.14%. Among the Far East ex-Japan markets, selective ASEAN equities fared better, while Chinese equities remained downbeat and Korea underperformed. The ASEAN Index declined 3.44%, but still performing better than the major Asian markets. Markets that performed relatively better were Malaysia (+4.01%), Vietnam (+3.04% in Local term), and Philippines (+3.04%) while the laggards were Chinese H shares (-9.96%), Hong Kong shares (-9.16%) and Korea shares (-5.96%). Regional currencies were weak against the USD. The best performing currencies were Vietnam Dong (-0.64%) and Chinese Yuan (-0.96%), while the weaker ones were Thai baht (-3.66%) and Korean Won (-3.27%).
Major US indices continued to advance. The market gained on optimism over favourable corporate earnings result announcements and continued softening of core inflation. The Fed held interest rates steady and gave its clearest signal yet that its aggressive hiking campaign is finished with officials forecasting several rate cuts next year. However, there was a shift to a slightly less dovish tone, pushing the market expectations for rate cut from March to May. Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq Composite returned +1.22%, +1.59% and +1.02% respectively. US core inflation reduced to 2.9% YoY (November: 3.2%), below 3% for the first time since March 2021. The job market is still red-hot. In December 2023 and January 2024, the U.S. job market added 686,000 jobs and hourly earnings accelerated 4.5% YoY.
The Stoxx Europe 600 Index up 1.39% amidst risk-off sentiment. In Europe, Eurostat’s latest flash CPI release for December showed headline and core inflation stabilized to 2.9% YoY and 3.4% 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.
Hong Kong and H shares indices underperformed on release of weak manufacturing activity data and continued selling from foreign investors. Hang Seng Index declined 9.16%, while Hang Seng China Enterprises Index and China’s A shares index declined 9.96% and 6.29% respectively. China’s manufacturing activity remained soft in January. The January China manufacturing purchasing managers’ index came in at 49.2, remaining in contraction for a fourth straight month. The disappointing numbers underlined the fragility of the economic recovery and fueled calls for more policy support.
South Korea’s KOSPI Index declined 5.96%, on profit taking. The index heavy counter, Samsung Electronics, reported 4Q23 result which came in significantly below forecast and Bloomberg consensus. On the domestic front, there has been growing concern about a credit crunch and corporate defaults. These continue to keep investment sentiment weak.
Taiwan’s TWSE Index declined 0.23% on consolidation post-election. The outcome of the Presidential election was largely expected by the market. December export orders were down 16.0% YoY, far below market consensus. Electronics saw the worst performance. Among major products, ICT orders declined 24.2% MoM and 25.3% YoY to US$12.27bn in December as end-demand was sluggish, leading to lower orders for handsets, notebooks and networking equipment; however, improved server orders on higher computing performance requirements and AI demand partially offset this decline.
Singapore’s STI declined 2.69% on profit taking. Singapore’s annual inflation rate unexpectedly inched up to 3.7% YoY in December from November’s 25-month low of 3.6%, exceeding market forecasts of 3.5%. Cost accelerated for transport (3.9% vs 2.8% in November), mainly due to private transport; recreation & culture (6.3% vs 5.6%), mostly driven by holiday expenses and recreational & cultural services.
Malaysia’s KLCI gained 4.01%, driven by re-rating of property and construction sectors on Johor development. The Johor state government believes that the Johor-Singapore Special Economic Zone (JS-SEZ) will be a game changer and a catalyst for economic improvement. An MOU was signed between the leaders of the two countries on January 11 with a full-fledged agreement expected to be signed at the end of 2024. The Johor State government intends to establish an Invest Malaysia Facilitation Centre (IMFC) united with Johor agencies. The State government has requested the expertise of Ministry of Investment, Trade and Industry (Miti) to help the state government succeed in this initiative under the JS-SEZ framework.
Thailand’s SET Index declined 3.63%, the biggest losing market in ASEAN. The S&P Global Thailand Manufacturing PMI rebounded to 46.7 in January 2024 from December’s 45.1, signalling a slight recovery in the manufacturing sector. Despite the improvement, it marked the sixth consecutive month of contraction, driven by a persistent decline in new orders. However, output saw growth and purchasing activity decreased at a slower rate, though foreign demand remained subdued. Supply conditions improved, and input prices rose for the third month, leading to increased cost burdens for clients.
Jakarta Composite Index declined 0.89%. Foreign direct investment (FDI) into Indonesia, excluding investment in banking and the oil & gas sectors, slowed sharply to 5.3% from a year earlier to IDR 184.4 trillion in Q4 of 2023 from a 16.2% surge in the previous three-month period. It marked the softest growth since Q3 of 2020, with investors still opting for a wait-and-see approach ahead of the general elections in February 2024.
The Philippines PSE Index gained 3.04%. The Philippines GDP expanded 5.6% YoY in the fourth quarter of 2023, slowing from an upwardly revised 6% growth in the previous period but beating market expectations of 5.2%. It marked the 11th consecutive quarter of yearly expansion, supported by a further increase in household consumption (5.3% vs 5.1%
in Q3) and fixed investments (10.2% vs 8.1%).
Vietnam’s VN-Index continued to strengthen with a gain of 3.04%, following a 3.24% rise in December 2023 and a 9.24% rise for the whole of 2023. The S&P Global Vietnam Manufacturing PMI climbed to 50.3 in January 2024 from 48.9 in the previous month. It was the first expansion in factory activity since last August, boosted by rises in new orders and output. New orders grew for the first time in three months, boosted by demand domestically and abroad, with export orders rising for the first time since last October.
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 US Fed has yet to change its “higher for longer” interest rate guidance. However, 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. Resilient US economic data, good corporate results from big US techs and the prospect of US rate cuts have boosted investor sentiments and pushed the US stock market higher.
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 lower interest rate environment as early as second half of 2024. This has kept investment sentiment buoyant.
We are also 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 and growth 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, 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 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.