Market Review June 2023

For the month of May 2023, the MSCI Far East ex-Japan Index declined 2.98%, compared to the MSCI World Index’s 1.25% drop. The performance of the Far East ex-Japan markets came off on the back of sharp correction  in Chinese risk assets on concerns over slower Chinese economy growth outlook. The ASEAN Index underperformed, declining 3.93%. Markets that performed relatively better were Taiwan shares (+6.42% in local currency term), Korea shares (+3.02%) and Vietnam shares (+2.48%), while the laggards were Hong Kong shares (-8.35%), China H shares (-8.04%) and Indonesia shares (-4.08%). Most regional currencies appreciated against the USD. The best performing currencies were Korean Won (+4.60%) and Vietnamese Dong (+4.53%), while the laggards were Malaysia Ringgit (+0.93%) and Taiwan dollar (+0.32%). Chinese Yuan weakened considerably against USD at -2.75%.

Major US indices performance was mixed with debt ceiling news flow creating significant trading volatility. The DJIA Index declined, while the NASDAQ Index had strong gain,  driven by hype in the Generative AI theme especially in the semiconductor sub-sector.  In terms of economic data, the headline consumer price index (CPI) continued to trend lower to 4.9% in April from 5.0%, as the Fed’s rate increases showed more impact. May Composite PMIs figure of 54.3, which was up from 53.4 in April, suggested economic activities remain healthy. Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq Composite returned -3.49%, +0.25% and +5.80% respectively.

The Stoxx Europe 600 Index declined 3.19% on profit taking.  The April eurozone inflation data remained stable, up 0.1% to 7.0% YoY, due to a 3.3% increase in energy price inflation. Meanwhile, core inflation came down 0.1% to 5.6% YoY as a rise in services inflation was offset by a move down in core goods price inflation. Also, food price inflation declined 1.9% to 13.5% YoY, the first significant decline in about two years. Against this inflation backdrop, the European Central Bank delivered an expected 25 basis points hike, raising the deposit rate to 3.25%.

Hong Kong and H shares indices declined, with Hang Seng Index and Hang Seng China Enterprises Index declining 8.35% and 8.04% respectively. China’s A shares index also declined 5.72%. China’s economic activities fell short of expectation and investors reacted negatively to May economic data. The manufacturing activity slipped unexpectedly with manufacturing purchasing managers index (PMI) at 48.8 in May, from 49.2 in April, falling deeper into contractionary territory. The nonmanufacturing PMI, which covers both service and construction sectors, remained in expansion territory, but pulled back to 54.5 in May from 56.4 the previous month.

South Korea’s KOSPI Index gained 3.02% on strong foreign fund inflow despite weak economic data. Korea’s industrial production and consumption both turned downward in April. According to data released by Statistics Korea, factory output across all sectors was 109.8 in April, when seasonally adjusted, down 1.4% from a month before. The retail sales index fell by 2.3% to 105.2 in April, after seasonally adjusted. The fall is also the largest decline since November last year when it had a 2.3% drop.

Taiwan’s TWSE Index gained 6.42% benefiting from strength in the global technology sector. Taiwan has revised its economic growth forecast for the year downward due to sagging global demand for its hi-tech goods. The Directorate-General of Budget, Accounting and Statistics said gross domestic product (GDP) would rise by 2.04% this year over 2022. In February, it had forecasted 2.12% growth. Taiwan’s April export orders were down 18.1% which is below forecast. Taiwan export orders totaled US$42.49bn in April, down 8.8% MoM (down 2.8% seasonally adjusted) and 18.1% YoY.

Singapore’s STI declined 3.42%. Singapore’s non-oil domestic exports (NODX) dropped by 9.8% YoY in April, worse than forecasts of a 9.4% fall, and after an 8.3% decline in March. The latest reading marked the 7th consecutive period of contraction, due to drops in sales of both electronic and non-electronic products. Shipments of electronic products shrank 23.3% YoY, after a 22.3% drop in March, dragged by ICs (-21.1%), disk media products (-41.6%), and parts of PCs (-50.3%).

Malaysia’s KLCI declined 2.04%. The country’s GDP growth slowed to 5.6% in 1Q23 compared with 7.1% in 4Q22. On a seasonal QoQ comparison, the economy grew marginally by 0.9% in 1Q23 after contracting by 1.7% in 4Q22. Domestic demand growth, albeit slower (4.6% in 1Q23 versus 6.8% in 4Q22) continued to keep the economy running, offsetting a contraction in real exports (down 3.3% in 1Q23 versus an increase of 8.6% in 4Q22).

Thailand’s SET Index gained 0.29%. The outcome of the general election was within market expectation. The University of the Thai Chamber of Commerce’s consumer confidence index rose for an eleventh month to 55 in April 2023 from 53.8 in the previous month. It marked the highest reading since February 2020, supported by the recovery in the tourism sector and increased activities during the election.

Jakarta Composite Index tumbled 4.08% on profit taking. Indonesia’s consumer confidence climbed to 126.1 in April 2023 from 123.3 in the previous month, pointing to the highest level since last June, as all sub-indexes strengthened. Households’ assessment regarding the country’s economic outlook improved (up by 2.0 points to 135.5), as did their views on current economic conditions (up by 3.5 points to 116.6).

The Philippines PSE Index declined 2.23%. The Philippine GDP advanced 6.4% YoY in 1Q23, beating the market consensus of 6.1%, after a downwardly revised 7.1% gain in 4Q22. This was the 8th straight quarter of expansion in the economy but the lowest growth in the sequence, amid intense cost pressures and higher interest rates. The GDP growth stayed within the government’s 6-7% target for 2023.

Vietnam’s VN-Index gained 2.48% . The State Bank of Vietnam (SBV) adjusted several policy interest rates, effective May 25, to follow the Government’s appeal to reduce interest rates and support the economy. The latest cut should boost credit demand further starting from Q3. The State disbursement for investment and development increased 15.6% YoY to VND110.6tn (USD4.7bn) in 4M 2023, the highest 4M level ever recorded. Nevertheless, this figure fulfilled only 15.2% of the annual plan approved by the National Assembly, which is lower than 18.2% in 4M 2022.

The string of rate hikes since 2021 and their impact on economic growth and the uncertainty as to how severe the global economic recession will remain the focus of investors’ concern. Hightened geo-political developments have also affected investor sentiments. The outlook on interest rate trend and expectation on the Fed’s rate decisions will continue to have a major influence on investors’ investment decisions on risk assets. However, it has become a tailwind risk factor. The easing of inflation rate in recent months has lifted investors’ sentiment. The US headline consumer price index (CPI) continued to ease with the latest reading at 4.9% in April.  Sentiment in the US has improved following Congress’s raising of the debt ceiling, and report of moderating wage growth in May, although given the various forces at play, the market can be expected to remain volatile.

The market corrections in recent periods present opportunities, especially in Asia ex. Japan, in particular Chinese equities on depressed valuation, and expansionary Chinese policies to support economic activities.

We remain watchful of geo-political developments as well as policy directions in the major economies, in particular US and China, which will have major implications on economies in general as well as on specific sectors.  US economic and inflation data and policy responses in terms of rate hikes in 2023 will affect market sentiments and liquidity, not just in the US but world wide. The market seems to have factored in a peak in interest rates in 2023, though risk remains. In Asia, the focus is on the extent of China’s economic recovery following the end of its “zero Covid” policy.

While we are more cautiously optimistic, there remains headwind for risk assets, including high interest rate and slower economic activities in 2023, as well as the still relatively high valuations in the developed markets. The continuing geo-political tension in Europe and in East Asia will keep risk premium elevated at times and result in markets volatility.

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 are also in the midst of developing a robust ESG investment framework to meet the increased expectations of investors and other stakeholders.

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.