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  /  News   /  Monthly Review March 2022

Monthly Review March 2022

The best performing regional indices were Malaysia (+6.35%), Indonesia (+3.88%) and Thailand (+2.21%), while the laggards were Hong Kong (-4.58%), China H-shares (-3.90%) and India (-3.05%). Regional currencies’ performance against the USD was mixed. The best performing currencies were Thai Baht (+1.59%) and Chinese Renminbi (+0.83 %).

For the month of February 2022, the MSCI Far East ex-Japan Index declined 2.11%, less than the MSCI World Index’s 2.65% decline.

Major indices in the US were down: Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq Composite declined 3.53%, 3.14% and 3.43% respectively. Risk assets continued to decline, aggravated by the Russia-Ukraine conflict. There was marked increase in market risk premium and volatility.  The potential higher interest rate environment prompted by rising inflation and a strong labour market led the Fed Chairman to become more hawkish. The services PMI business survey rose sharply, as did the manufacturing PMI. Retail sales beat expectations, rising 3.8% after a disappointing December release, suggesting that US consumers had delayed spending as a result of Omicron rather than curtailed it. The rebound in consumer spending translated into yet another upside surprise on inflation. US headline inflation for January was 7.5% year-on-year, well ahead of expectations.

The Stoxx Europe 600 Index declined 3.36% amidst concerns over policy tightening, inflation and geopolitical tension. In Europe, the labour market is improving. The unemployment rate fell to 7% which is a record low since the euro’s inception. The wage growth is expected to rise, with recent data showing that negotiated wages were just 1.5% higher in the fourth quarter of 2021 relative to the prior year, lagging behind the US and UK.  Business surveys such as the flash eurozone composite Purchasing Managers’ Index (PMI) indicated acceleration in economic momentum in Europe. Eurozone headline inflation reached 5.1% year-on-year, its highest level on record.

Hong Kong and H shares indices declined, with Hang Seng Index and Hang Seng China Enterprises Index dropping 4.58% and 3.90% respectively. China’s A shares index gained 0.39%. The technology sector continued to come under pressure on regulatory concerns. Online delivery platforms were told to give preferential fee to regions hit by the pandemic. Following relaxation of liquidity, new loans and social financing in January were significantly higher than the same period last year, hitting a record high. The high credits reflected banks’ intention to make an auspicious start as policymakers showed strong signals to stabilize the economy and asked financing institutions to be more proactive in providing credit supports.

South Korea’s KOSPI Index gained 1.35% on bargain hunting. The central bank governor hinted additional rate hikes this year after holding the interest rate at 1.25% following the January 25 bps increase as the economy will face persistently high inflation for a substantial period. Bank of Korea (BOK) also raised its inflation target to 3.1% for 2022 from its previous 2% projection. Meanwhile, the growth outlook for this year was kept intact at 3% and 2.5% for 2023. Production price index for January rose +8.7% yoy (+0.9% mom), extending the uptrend for a 14th month. The increase was driven mainly by energy, chemical products and agricultural goods on record-high oil price and agricultural inflation.

Taiwan’s TWSE Index declined 0.13%.  The index was held up by the index heavy semiconductor stocks on good earnings visibility. Rising housing prices reportedly prompted the regulator to come up with more measures that will raise risk weighting on banks’ housing and land related loans. Banks with high exposure to these types of loans could be required to raise capital, and property loans may become more expensive or difficult to get.

Singapore’s STI declined 0.23%. Singapore’s economy expanded 6.1% yoy in the fourth quarter of 2021 from an initial estimate of 5.9%, slowing from a 7.5% growth in the preceding quarter and slightly lower than market expectation for a 6.2% increase. The manufacturing sector expanded 15.5% supported by output expansions across all clusters, with biomedical manufacturing and transport engineering clusters posting the largest increases in output. The construction sector grew by 2.9% as both public and private sector construction output rose. For the whole of 2021, the economy grew by 7.6%, rebounding from the 4.1% contraction in 2020. For 2022, the government kept its forecast for growth to come in at 3%-5%.

Malaysia’s KLCI gained 6.35%. Manufacturing PMI improved marginally in February to 50.9 compared to 50.5 in January. Export sales resumed growth for the 2nd time in 3 months, with the expansion being the quickest for 10 months amid stronger demand in the US and parts of Asia. Both output and new orders eased for the 2nd month running, amid sustained raw material shortages.

Thailand’s SET Index gained 2.21%. The Finance Ministry plans to propose to the cabinet a reduction of the import duty for electric vehicles (EVs). Deputy Finance Minister Santi Promphat said smaller EVs should be subject to lower import tax rates than larger ones in line with the ministry’s plan to promote their adoption. The Bank of Thailand predicts headline inflation will exceed the target rate in the early part of this year, forced up by rising raw food and energy prices. According to the central bank’s inflation targeting framework, the headline inflation rate is in a range of 1-3% for 2022 and the medium-term horizon.

The Jakarta Composite Index gained 3.88%. Indonesia’s Manufacturing PMI remained healthy at 51.2 in February, though it was down from 53.7 in the prior month. Indonesia’s economy grew by 5.02% yoy in the final quarter of 2021, surpassing consensus expectations of +4.81% yoy. The growth was backed by stronger manufacturing activities (+4.02% yoy), followed by faster expansion from the base metal industry (+11.31% yoy), as well as the coal and oil & gas industry which grew by +8.58% yoy. Full year 2021 GDP growth came in at +3.69% yoy, compare to -2.07% yoy in 2020

The Philippines PSE Index declined 0.69%. February manufacturing PMI improved to 52.8 from 50.0 in the previous month. The central bank kept its key rate unchanged at a historical low of 2%, for its 10th straight meeting, but hinted at an “eventual normalization” of policy once the economic recovery is sustained or inflation risks rise.

Vietnam’s VN-Index has edged up 0.76%. Ho Chi Min city’s success in controlling the COVID-19 pandemic had resulted in its retail rents showing signs of recovering after the sharp fall in rentals in the last two years. Downtown streets, malls, restaurants, and coffee and tea shops are becoming crowded again, especially during weekends. Domestic economic activities are expected to recover, supporting economic growth.

Given the corrections in recent period, we see room for more optimism on risk assets on valuation becoming more attractive, especially in Asia ex. Japan, coupled with positive impacts of expansionary Chinese policies to support economic activities. However the recent Russia-Ukraine conflict event has increased risk premium significantly. We are also watchful of developments in the Russia-Ukraine conflict as well as policy directions in the major economies, in particular US and China, which will have major implications on the economies in general as well as on specific sectors.  US policy responses will face headwinds going into 2022, in our opinion. Tapering and rate hike in 2022 will affect liquidity and increase cost of borrowing in the system. In Asia, the focus is on China’s policy responses to the liquidity crunch in the property sector. Chinese authority has acted decisively to stabilize the economy with liquidity injection.

There remains headwind for risk assets, including rising bond yields and interest rate hikes to contain inflation and relatively high commodity prices, as well as the still relatively high valuations in the developed markets. The geo-political issues between China and US, and the new tension between the US and Russia over Ukraine will keep risk premium elevated at times and result in markets volatility.

We are adding to risk assets as valuation become more attractive. 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 increasingly socially-aware demands of investors, as well as 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 advertisement 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.