Market Review October 2024
Risk assets in major markets gained in September 2024, driven by easing monetary policies. The Far East ex-Japan Index outperformed developed markets. Led by Chinese shares, the MSCI Far East ex-Japan Index gained 10.06%, while the MSCI World Index rose by 1.69%. Among Far East ex-Japan markets, ASEAN equities underperformed with a return of 5.54%. China A shares (+20.97%) and China H shares (+18.62%) were the top performers, boosted by significant stimulus announcements. Meanwhile, Korea shares (-3.03%) and Indonesia shares (-1.86%) were the laggards. Regional currencies strengthened against the USD, with the Malaysian Ringgit (+6.29%), Indonesian Rupiah (+5.21%), and Thai Baht (+4.41%) leading the gains, while the Vietnamese Dong (+1.56%) and Chinese Yuan (+1.91%) also appreciated.
Major US indices saw positive performance, driven by improved sentiment after the Fed cut interest rates by 50 bps. The US economy remained resilient, with the Dow Jones Industrial Average (DJIA), S&P 500, and Nasdaq rising 1.85%, 2.02%, and 2.68%, respectively. The headline CPI continued to decline to 2.50% in August, meeting market expectations, while core CPI remained stable at 2.70%. The US composite PMI was firm at 54.0 in September, suggesting continued expansion, although the manufacturing PMI softened to 47.3, indicating slower factory activity.
In Europe, the Stoxx Europe 600 Index fell by 0.41%, as the eurozone’s Composite PMI remained in contraction at 48.9, with the economic outlook staying weak. The manufacturing PMI also dropped to 45.0 from 45.8 in August, reflecting slower activity.
Hong Kong’s Hang Seng Index and Hang Seng China Enterprises Index surged by 17.48% and 18.62%, respectively, following strong stimulus measures. Chinese A shares also rebounded sharply, gaining 20.97%. China’s external demand remained robust, with August exports up 9.0% Year-on-Year, exceeding expectations. A Politburo meeting chaired by President Xi stressed urgency in stabilising the economy, with efforts to boost the financial and property markets.
South Korea’s KOSPI Index dropped 3.03%, weighed down by Samsung Electronics’ stock decline on earnings concerns. The OECD cut South Korea’s 2024 growth forecast to 2.5%, but exports remained stable with a 2.2% forecast for next year.
Taiwan’s TWSE Index lagged, declining by 0.20% due to profit-taking. The weaker US dollar could impact Taiwan’s electronics revenue. However, Taiwan’s industrial production rose 12.3% Year-on-Year in July, driven by a 12.97% growth in manufacturing.
Singapore’s STI rose 4.13%, with non-oil domestic exports up 10.7% Year-on-Year in August, largely due to a 35.1% jump in electronics shipments. The Asian Development Bank upgraded Singapore’s GDP growth forecast to 2.6%, up from 2.4%.
Malaysia’s KLCI declined 1.78%, as domestic fund support weakened despite positive sentiment. Total trade grew 18.6% Year-on-Year in August, marking eight consecutive months of expansion, although the trade surplus narrowed to RM5.7 billion due to faster import growth.
Thailand’s SET Index gained 6.60%, driven by strong capital inflows and currency appreciation. Political stability reduced risks and attracted foreign investment. August exports grew 7.0% Year-on-Year, exceeding expectations, while imports increased 8.9%.
Jakarta’s Composite Index fell by 1.86% as foreign investors took profits. Bank Indonesia cut the BI-Rate by 25 bps to 6% ahead of the Fed’s rate cut, while inflation stood at 2.12% in August.
The Philippines PSE Index gained 5.44%, extending the 8.12% gain in August, as inflation continued to ease. September inflation was 1.9%, indicating potential for looser monetary policy. Foreign fund inflows year-to-date stood at USD 22 million.
Vietnam’s VN-Index rose by 0.32%, supported by credit growth of 7.38% by mid-September, led by private banks. The State Bank of Vietnam set a 15% credit growth target for 2024, while the Finance Ministry removed a prefunding requirement for foreign investors, boosting Vietnam’s chances of being upgraded to an Emerging Market classification.
After many months of rate hikes by the US Fed since 2022 to beat inflations, the Fed finally decided at its 18 September meeting to cut rates by 50 bps. Balancing inflation risk against the risk of the labour market will influence the Fed’s rates moves going forward. Market expectations are that there may be a further rate cut before the end of the year. Markets have reacted positively to the Fed’s 50 bps rate cut in September, although much of it had been factored into the market.
So far, resilient US economic data and the prospect of US rate cuts have boosted investor sentiments and pushed the US stock market higher, breaching new historical high. Investors have been pricing in expectation of a lower interest rate environment as early as second half of 2024. This, coupled with corporate earnings reports that have so far been better than expected, has kept investment sentiment buoyant, despite the US market’s elevated valuation and continuing geo-political tensions. 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 expanding and intensification of military conflicts in the Middle East, could also have major adverse impact on the markets.
So far, resilient US economic data and the prospect of further rate cuts have boosted investor sentiment, pushing the US stock market to new historical highs. Investors are already pricing in expectations of a lower interest rate environment as early as the second half of 2024. Strong corporate earnings, which have exceeded expectations, are also supporting positive market sentiment, despite elevated valuations and ongoing geopolitical tensions. Any negative shift in US economic growth or corporate earnings could significantly impact the market. Escalation of geopolitical conflicts, especially in the Middle East, could also weigh heavily on global markets.
We are watchful of geo-political developments as well as policy directions in the major economies, in particular US and China. The continuing Israel-Hamas conflict, and the risk that it may potentially spread in the Middle East, has added to the uncertainties. US economic, labour, inflation data, and interest rate decisions will influence market sentiment and liquidity. Adding to market uncertainties is the upcoming US Presidential election on 4 November, where the outcome, whether it’s Donald Trump or Kamala Harris, could lead to significant shifts in US economic and foreign policy.
In Asia, the focus is on China’s economic recovery, which has been slower than expected. The Chinese property sector continues to face severe challenges, and any signs of stabilisation would serve as a positive catalyst for China’s economy and risk assets. The Chinese government has introduced several measures to support the economy, including a series of monetary, fiscal, and policy initiatives in September aimed at stimulating investment, enhancing liquidity, and restoring confidence in the property and financial markets. While these actions have improved market sentiment, their long-term effectiveness remains uncertain and will be closely monitored. It may take time for these measures to show results.
Despite the headwinds for risk assets, such as high interest rates and their impact on businesses and economic activities, US market valuations remain high, and geopolitical tensions persist in Europe, the Middle East, and East Asia. Additionally, China’s economic growth is still below expectations. However, we remain cautiously optimistic. Following years of sell-offs, China’s depressed equity valuations offer potential upside, particularly with the recent wave of significant policy changes.
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.