Market Review January 2024
Risk assets uptrend continued in most markets in December 2023 with typical window dressing at year end on reduced macro headwinds. The Far East ex-Japan index lagged the developed markets. The MSCI Far East ex-Japan Index gained 2.27%, while the MSCI World Index advanced 4.81%. Among the Far East ex-Japan markets, Korea and Taiwan continued to perform relatively well following their stellar performance in Novermber, while Chinese equities remained downbeat. The ASEAN Index gained 4.89%, matching the developed markets performance. Markets that performed well were Singapore (+5.44% in Local currency term), Korea (+4.73%) and Thailand (+2.58%), while the laggards were Chinese H shares (-1.52%), China A shares (-1.86%) and Hong Kong shares (+0.03%). Regional currencies were mixed against the USD. The best performing currencies were Thai baht (+3.12%) and Taiwan NT (+2.27%), while the laggards were Vietnamese Dong (-0.03%) and Korean Won (-0.06%).
Major US indices continued to advance. The market gained on optimism over favourable interest rate outlook as US headline and core inflation continued to soften. 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. Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq Composite returned +4.84%, +4.42% and +5.52% respectively. US headline inflation dropped to 3.1% YoY (October: 3.2%) while core inflation stayed flat at 4.0% YoY (October: 4.0%). The University of Michigan Consumer Sentiment Survey showed an increase to a five-month high as Americans are more optimistic about the outlook for inflation than they have been since 2021.
The Stoxx Europe 600 Index gained 3.77% amidst risk- on sentiment. In Europe, Eurostat’s latest 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.
Hong Kong and H shares indices underperformed on sharp decline of index heavy gaming sector due to new regulatory guidelines on gaming monetisation strategies. Hang Seng Index gained marginally 0.03%, while Hang Seng China Enterprises Index and China’s A shares index declined 1.52% and 1.86% respectively. China’s manufacturing activity remained soft in December. The China manufacturing purchasing managers’ index fell to 49.0 from 49.4 in November. The disappointing numbers underlined the fragility of the economic recovery and fueled calls for more policy support.
South Korea’s KOSPI Index gained 4.73%, reflecting buoyant sentiment on technology sector recovery and optimism on export growth outlook. However, domestically, there has been growing concern about a credit crunch and corporate defaults. South Korean officials pledged to step up a USD66 bn program to stabilize markets if needed to limit the spillover from a builder’s debt troubles.
Taiwan’s TWSE Index chalked up a 2.85% gain on global technology index strength and pre-presidential election rally. Taiwan export orders totaled US$50.63bn in November, down 4.2% M.o.M (down 5.4% seasonally adjusted), but up 1.0% YoY, returning to growth after 14 consecutive months of YoY contractions. There had been increased optimism on semiconductor sector recovery on the back of technology inventory restocking.
Singapore’s STI gained 5.44%, the best performance in Asia ex-Japan. Singapore’s annual inflation rate dropped to 3.6% in November from 4.7% in the previous month. It was the lowest reading since October 2021, coming less than market forecasts of 3.8%. Monthly, consumer prices declined by 0.2%, the first drop in four months after a 0.2% rise in October. Singapore’s manufacturing production grew 1% YoY in November, easing sharply from an upwardly revised 7.6% gain in the previous month and below market expectations of a 3.1% rise.
Malaysia’s KLCI gained 0.13%. Malaysia’s economic momentum is expected to steadily improve heading into next year, with gross domestic product (GDP) set to grow by 4.5%-5.5% in 2024 from an estimated 4% this year, according to RAM Rating Services Bhd. The economy is expected to benefit from a potential turnaround in external demand, the credit rating agency.
Thailand’s SET index declined 13.99% amidst political uncertainty following the general election in May. Thailand’s latest industrial production declined by 4.71% YoY in November more than market expectations of a drop of 4.00%, amid sluggish domestic economic recovery and lingering headwinds from overseas.
Jakarta Composite Index gained 2.71%. Bank Indonesia (BI) kept the benchmark 7-day reverse repurchase rate at 6.00%. Indonesia exports fell by 8.6% from a year ago (vs. -10.4% in October), the smallest decline in 6 months, while dipping -0.7% M.o.M. The slump in exports was due to palm oil exports (-10.5% YoY), electrical machinery & equipment (-7.7% YoY) and coal (-31.3% YoY).
The Philippines PSE Index gained 3.64%. The annual inflation rate continued to ease, coming in at 4.1% in November 2023 from 4.9% in the previous month and less than market estimates of 4.3%. It was the lowest rate since March 2022, mainly due to lower inflation for food & non-alcoholic beverages (5.7% vs 7.0% in October), and the decline in prices for transport (-0.8% vs 1.0%). The Central Bank of the Philippines held its benchmark interest rate at 6.50% in December 2023, in line with market expectations. It was the second consecutive meeting when benchmark interest was kept unchanged.
Vietnam’s VN-Index gained 3.27% following a 7.74% rise in November. Strong capital flow continued to keep asset prices strong. 2023 Vietnam FDI disbursements increased 3.5% YoY to USD23.2bn, while FDI registrations soared 32.1% YoY to USD36.6bn. December 2023 saw FDI disbursements of USD2.9bn (the highest monthly level ever) and registrations of USD7.8bn (highest monthly level since June 2018). The manufacturing and processing sector accounted for 64% of total FDI registrations.
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.