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  /  Article   /  Market Review July 2024

Market Review July 2024

Risk assets continued to advance in selective markets in June 2024, principally those benefiting from the semi-conductor upcycle and AI theme. The Far East ex-Japan index outperformed the developed markets. The MSCI Far East ex-Japan Index gained 3.06%, while the MSCI World Index gained 1.93%. Among the Far East ex-Japan markets, Taiwan and Korea shares performed well, while ASEAN equities lagged with a return of 0.26%. Asean markets were generally down, with the exception of Indonesia which eked out a small gain, although Year To Date (YTD), Jakarta composite index was still down 2.88%. Taiwan shares (+8.77%) and Korea shares (+6.12%) were the top performers in June.  Taiwan was also the best performing market YTD (+28.45%).  The laggards were China A shares (-3.30%), Thailand shares (-3.32%) and Hong Kong shares (-2.00%). Regional currencies were mixed against the USD. The best performing currencies were Korea Won (+0.67%), Thai baht (+0.19%) and Taiwan NT (+0.09%), while the weaker ones were Indonesia Rupiah (-0.75%) and Chinese Yuan (-0.35%).

Major US indices gained momentum from May’s advances. The market rose on a resilient economic outlook. However, there were signs of weakness, prompting optimism for a reduction in interest rates. US employment edged up to 4.0% in May, and consumer confidence and retail sales remained weak. The Dow Jones Industrial Average (DJIA), S&P 500, and Nasdaq Composite were up 1.12%, 3.47%, and 5.96% respectively. US core inflation hit a three-year low at 2.6% year on year in May. The US composite Purchasing Managers’ Index (PMI) remained firm at 54.6 in June compared to 54.5 in May, suggesting activity continued to expand.

The Stoxx Europe 600 Index declined by 1.30% due to political uncertainty as the France and UK elections draw near. In the eurozone, the ECB cut interest rates in June by 0.25% to 3.75%, its first cut in five years. However, May’s core inflation remained sticky at 2.9%. Indications are that the ECB will wait to assess new data on the economy and inflation outlook before deciding on its next rate move.

Hong Kong and H-share indices corrected on profit-taking. The Hang Seng Index, Hang Seng China Enterprises Index, and China’s A-shares index declined by 2.00%, 0.95%, and 3.30%, respectively. China’s exports continued to strengthen with an increase of 7.6% Year on Year in May after edging up by 1.5% Year on Year in April. The export growth was bolstered by recovering global manufacturing activities. However, property investment declined further in May, while the growth of infrastructure investment weakened, leading to a slowdown in total fixed asset investment growth.

South Korea’s KOSPI Index gained 6.12%. South Korea’s exports rose for the ninth consecutive month in June, albeit at a slower pace than expected, as robust demand for chips and cars bolstered the export recovery. The Korean government plans to offer various tax benefits and tax reforms to facilitate the Korean Value-Up Program, which will improve shareholder value and boost investor sentiment.

Taiwan’s TWSE Index gained 8.77%, driven by technology shares, specifically the semiconductor sector. May export orders were up 7.0% Year on Year, beating the forecast of 6% and the consensus of 6.2% growth Year on Year. Taiwan export orders totalled US$48.89 billion in May, up 3.8% Month on Month (seasonally adjusted up 0.60%) and 7.00% Year on Year, beating the forecast of 6.00% and the consensus of 6.20% Year on Year growth.

Singapore’s STI declined by 0.11% on profit-taking. Singapore’s overall factory manufacturing activity grew slower despite favourable business conditions in the region. The Purchasing Managers’ Index (PMI) dropped 0.2 points to 50.4, the lowest so far this year. It still marks a healthy 10th straight month of expansion.

Malaysia’s KLCI declined by 0.41% on profit-taking. However, domestic flow remained strong, and investors’ sentiment remained high on ample domestic liquidity. The seasonally adjusted S&P Global Malaysia Manufacturing PMI posted 49.9 in June, broadly in line with the neutral 50.0 mark. S&P Global Market Intelligence reported that the latest figure presented a less positive picture compared to May when operating conditions improved slightly, with the PMI recording 50.2.

Thailand’s SET Index continued to weaken, declining by 3.32% amidst political uncertainty. Thailand’s economy expanded in May 2024, though at a slower pace than in the previous month, due to declines in exports, manufacturing production, and private investment, according to the Bank of Thailand. The bright spot is the tourism sector, which showed positive signs with continued growth from the previous month.

The Jakarta Composite Index recovered, gaining 1.33% on domestic bargain hunting. Indonesia’s annual inflation rate slowed to 2.51% in June 2024, driven mainly by declines in food, beverage, and tobacco prices. The largest contributor to the monthly deflation was the food, beverages, and tobacco group, which saw a 0.49% decrease and contributed 0.14% to the overall deflation in June.

The Philippines’ PSE Index declined by 0.33%. Investment sentiment continued to be affected by tension between the country and China in the South China Sea region. The Philippines’ GDP growth is expected to rebound to 6% in 2024 and 6.2% in 2025, on the back of stronger consumption demand, higher public and private investment, and a recovery in exports, according to International Monetary Fund (IMF) official Elif Arbatli Saxegaard.

Vietnam’s VN-Index declined by 1.30% on profit-taking. The economic outlook remained robust with second quarter GDP growing 6.9% Year on Year (the 2nd highest 2Q growth since 2019, only lower than 2QFY 2022 +8%). Foreigners net sold US$175 million (the 17th consecutive week of net selling) year to date.

After many months of rate hikes by the US Fed since 2022 to beat inflation, the easing of inflation in the US in recent months has raised market expectations that rates may start to fall. Fed officials have forecast several rate cuts at the beginning of 2024, although whether this will materialize depends on the economic data at that time. The market was hopeful for rate cuts as early as March, but the prospect of this happening has been pushed back to the second half of 2024. While May inflation data did not increase, and the 12-month rate of price increase has slowed to 2.6%, it remains above the Fed’s 2% target. The Fed will wait for more inflation and labor market data before deciding on any rate cut.

Resilient US economic data, good corporate results from major US tech companies, plays on companies benefiting from AI, and the prospect of US rate cuts have boosted investor sentiment and pushed the US stock market to new historical records. However, the ‘higher-for-longer’ narrative on US interest rates appears to be regaining some prominence, with observers pointing to some downside risks to economic activity.

US economic and inflation data, expectations regarding the Fed’s rate decisions, will continue to have a major influence on investors’ decisions on risk assets in the US and elsewhere. Investors are pricing in a lower interest rate environment as early as the second half of 2024. This, coupled with better-than-expected earnings reports and a more resilient economy, has kept investment sentiment buoyant despite the US market’s elevated valuation and continuing geopolitical tensions.

We are watchful of geopolitical developments and policy directions in major economies, particularly the US and China. The ongoing Israel-Hamas conflict and the risk of its potential spread in the Middle East have added to the uncertainties. US economic and inflation data and interest rate policy responses will affect market sentiment and liquidity. Following the first presidential debate between Joe Biden and his challenger, Donald Trump, attention is focused on whether Biden will remain the Democratic Party nominee in the November 4 US Presidential election, who will win the race, and how it will affect US policies. 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 act as a positive catalyst for China’s economy and risk assets. The Chinese government has announced various measures to help the economy and the property sector in particular. It may take time for these initiatives to bear fruit.

While we remain cautiously optimistic, there are headwinds for risk assets, including the continuation of high interest rates and their impact on business and economic activities, slower-than-expected economic growth in China, and escalating valuations in the US. Continuing geopolitical tension in Europe and East Asia, along with the new conflict in the Middle East, will keep risk premiums elevated and result in market volatility. We will stay watchful of these developments.

The prolonged sell-off of Chinese equities and their depressed valuations may offer potential upside should supportive and expansionary Chinese policies to bolster economic activities succeed.

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.