Market Review January 2025
Risk assets performance diverged in December 2024 in favour of selected markets in Asia which gained on optimism over China economic stimulus measures to accelerate economic activities. Driven by the Chinese markets, the MSCI Far East ex. Japan Index gained 0.93%. The World index underperformed, declining 2.68%. ASEAN equities underperformed relatively with a return of -0.83%. Malaysia shares (+3.01%) were the top performers in December. The laggards were Indonesia shares (-0.48%) and Thailand shares (-1.91%). Regional currencies were weak against the USD. The best performing currencies were Philippine Peso (+1.10%), Vietnamese Dong (-0.55%) and Malaysia Ringgit (-0.58%), while the weaker ones were Korean Won (-5.51%) and Singapore Dollar (-1.93%).
Major US indices mostly retraced on profit taking with the Federal Reserve guided for potential risk of remerging inflation going into 2025. The strength in USD and high interest rate for longer duration scenario dampened investors risk appetite. The Fed cut the interest rate by 25 bps. The US economy remained resilient. Dow Jones Industrial Average (DJIA) and S&P 500 declined 5.27% and 2.50% respectively while the Nasdaq Composite Index gained 0.48%. The US Composite Purchasing Managers’ Index (PMI) expanded to 56.6 in December compared to 54.9 in November, suggesting overall activity continued to expand. The Manufacturing PMI remained stable at 49.4 from 49.7 a month ago, though still reflecting contracting factory activity.
The Stoxx Europe 600 Index declined 0.52%. In the eurozone, economic data continued to point to weakness. The latest November Composite Purchasing Managers’ Index (PMI) fell to a 10-month low of 48.3. The manufacturing PMI in December dropped further to 45.3 compared to 45.5 a month ago. Euro area annual inflation rate rose to 2.3% in November 2024, up from 2.0% in October.
Hong Kong and H shares indices recovered on renewed talks of more stimulus measures by the Chinese government. Hang Seng Index and Hang Seng China Enterprises Index gained 3.28% and 4.94% respectively. Chinese A shares declined 0.47% on weaker currency. The Politburo held a meeting on 9 December to set the tone for the economic work in 2025. The Politburo meeting determined that the priority of the economic work in 2025 is to expand domestic demand in all aspects, with the focus on stabilizing the property and stock markets, improving livelihood, and accelerating economic system reform measures. In order to realize the goal of expanding domestic demand, the stance of macroeconomic policy is set to be more proactive and impactful, which is unusual in the past 15 years.
South Korea’s KOSPI Index declined significantly, dropping 2.30%, weighed down by political turmoil. The Asian Development Bank (ADB) has lowered its growth forecast for South Korea in 2025 to 2%, reflecting concerns about a slowdown in the global economy and the semiconductor industry. This revised projection is 0.3 percentage points lower than the bank’s previous estimate. The ADB’s forecast does not account for recent political developments in South Korea, sparked by the short-lived declaration of martial law and the subsequent impeachment efforts against President Yoon. These events could potentially introduce additional uncertainty and volatility to the South Korean economy.
Taiwan’s TWSE Index gained 3.47%. Taiwan raised the full-year GDP forecast to 4.27%. According to the Directorate General of Budget, Accounting, and Statistics (DGBAS), the GDP forecast was lifted by 0.37% based on better-than-expected export performance and strong private investment. The DGBAS predicted economic growth will fall back next year to 3.29%. The AI wave has driven the export of electronic components and IT products, with exports this year reaching US$474.5 billion, an annual increase of 9.9%.
Singapore’s STI gained 1.29% on profit taking. Singapore’s non-oil domestic exports (NODX) rose by 3.4% in November, reversing a revised 4.7% contraction in October. Electronics grew, while non-electronics saw a decline, according to data released by Enterprise Singapore. On a year-on-year (Year-on-year) basis, electronic product exports expanded by a faster 23.2% in November, following a 2.6% rise in October.
Malaysia’s KLCI gained 3.01%. Malaysia’s latest leading index showed the country’s economic outlook remains positive, according to the Department of Statistics Malaysia (DOSM). The leading index, which provides an early indication of significant turning points in the business cycle and the direction of the economy in the near term, remained in a positive growth by recording 1.5% increase in October 2024, reaching 111.1 points as compared to 109.5 points in the same month of the previous year.
Thailand’s SET Index declined 1.91%. The Bank of Thailand maintained its key interest rate at 2.25% in its final 2024 meeting. Thailand’s trade deficit declined to USD 0.22 billion in November 2024, down from USD 2.40 billion compared to the previous year, as exports grew much more than imports. Exports increased 8.2% from a year earlier to USD 25.61 billion, the fifth consecutive month of expansion, easing sharply from the fastest pace in three months in October of 14.6%. External demand provided relief from the weak domestic consumption.
Jakarta Composite Index declined 0.48% on profit taking by foreign funds. The Bank of Indonesia maintained its benchmark interest rate at 6% during its December meeting, in line with market expectations. Indonesia’s trade surplus jumped to USD 4.42 billion in November 2024 from USD 2.41 billion in the same month a year earlier, surpassing market estimates of USD 2.21 billion. This marks the largest trade surplus since July, mainly due to a surge in exports.
The Philippines PSE Index edged down 1.29%. The producer prices in Philippines continued to be weak, dropping 0.3% Year-on-year in October 2024, following a 1.4% fall in the previous month. This marked the tenth consecutive month of producer deflation but the softest decline since June. This suggests weak domestic consumption and pricing environment.
Vietnam’s VN-Index gained 1.31%. The S&P Global Vietnam Manufacturing PMI fell to 50.8 in November (from 51.2 in October). Output and new orders rose at a slower pace, while employment continued to fall amid cost-cutting efforts. The National Assembly approved the extension of the 2% VAT reduction from 10% to 8% until 30 June 2025 to boost domestic consumption.
The market optimism over the election of Donald Trump as the new US President on expectations that his policies would be positive for the US sparked a recalibration of macro variables and asset allocation decision. However, as a result of concern about inflation, interest rate outlook turned less dovish and USD strengthened. Uncertainty about actual policies implementation can create large variances against expectations and bring about higher trading volatility.
So far, resilient US economic data and the prospect of US rate cuts, as well as better than expected corporate earnings reports, have boosted investor sentiments and pushed the US stock market higher, breaching new historical highs. This is despite the US market’s already elevated valuation and continuing geo-political tensions. During his Presidential election campaign, Donald Trump had pitched that he would bring about a quick cessation to the Russia-Ukraine war should he be elected. 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 and tensions could also have major adverse impact on the markets. It remains to be seen whether the incoming Trump Administration will provide the catalyst to a cessation of the war in Ukraine, and how it would change the face of the conflict in the Middle East, and elsewhere.
We are watchful of geo-political developments as well as policy directions in the major economies, in particular US under a Trump Administration and in China. US economic, labour market 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 China’s economy and risk assets. The Chinese government continues to bring forth various measures to help the economy. In further moves to address the economic situation, the Chinese government announced in September a slew of monetary, fiscal and policy measures to stimulate investment, enhance liquidity and restore confidence in the property and financial markets. While the move has boosted market sentiments, the longer- term effectiveness remains to be seen and will be closely watched. It may take time for the initiatives to bear fruits. Market observers believe that more stimulus measures could be expected down the road.
While interest rates have started to be eased, there remains headwind for risk assets, including the impact of the still high interest rate on business and economic activities, uncertainties in the US policies post the US Presidential election, the historically high market valuations in the US, the continuing geo-political tension in Europe, Middle East and in East Asia, and the still slower than expected economic growth in China. However, in the investment space we are in, we believe there is room for cautious optimism. After years of prolonged sell down, China equities’ depressed valuation offer potential upside, particularly following the recent rounds of significant policy change initiatives.
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.