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  /  News   /  Monthly Review November 2022

Monthly Review November 2022

The best performing regional indices were Philippines (+7.18%), Korea (+6.41%) and Australia (+6.01%), while the laggards were H shares (-16.49%), A shares (-15.21%) and Hong Kong (-14.72%). Regional currencies were mixed against the USD. The best performing currencies were Singapore Dollar (+1.33 %) and Philippines Peso (+0.91 %), while the worst were Vietnamese Dong (-3.93%) and Chinese Yuan (-2.62%).

For the month of October 2022, the MSCI Far East ex-Japan Index declined 7.96%, compared to the MSCI World Index’s 7.11% gain. The huge divergence in performance was driven by sharp corrections in Chinese risk assets. The ASEAN Index performed relatively better within Asia region.

Risk assets gained in October. Major indices in the US gained on generally positive corporate earnings announcements. Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq Composite returned 13.95%, 7.99% and 3.90% respectively. Economic data indicated a marked slowdown in activity. US GDP growth in Q3 was the slowest in over a year at an annualized 2.0% QoQ, down from 6.7% in Q2. A slowdown in both housing starts and home sales highlight how higher mortgage rates weighed on the sector. Flash PMI data disappointed, with the manufacturing survey falling to 49.9, its lowest level since early in the pandemic. Meanwhile, the services survey declined to 46.6, with forward looking indicators notably weak.

The Stoxx Europe 600 Index gained 6.28%. European Central Bank (ECB) raised its key interest rates by 75 basis points. Europe announced new plans to tackle the energy crisis that included a first version of a price cap and a common purchases system that will allow the EU to use its collective purchasing power to obtain better prices from suppliers. These measures, together with new fiscal stimulus support of €40bn, should help both households and businesses. The eurozone PMI surveys reached levels that are consistent with recession. October’s flash composite PMI registered a fall to 47.1, with the manufacturing index at 44.2 and services at 48.2. Euro area annual inflation was estimated at 4.1% for October, up from 3.4% in September. Meanwhile, EU’s Q3 GDP growth was 2.2%, compared to 2.1% in Q2.

Hong Kong and H shares indices declined sharply, with Hang Seng Index and Hang Seng China Enterprises Index dropping 14.72% and 16.49% respectively. China’s A shares index also declined 7.78%. China experienced a slump in consumption during the National Day holiday. According to the Ministry of Transport, the total number of passengers traveling across the country was estimated to be 256 million during the holiday period, down 36%, 41% and 58% from the same period in 2021, 2020 and 2019 respectively. The sharp decline in travelers translated into weak consumption, resulting in a drop of 26% YoY in tourism revenue to CNY 287bn. The conclusion of China’s 20th National Congress in October and the leadershsip line-up reaffirmed General Scretary Xi Jinping’s political power which was viewed negatively by foreign investors.

South Korea’s KOSPI Index gained 6.41% on bargain hunting. South Korea is redoubling efforts to shore up local credit market as yields surge to decade highs and default risks spread. Money market yields have soared since Gangwon Jungdo Development Corp., the developer of the new Legoland Korea theme park east of Seoul, missed bond payments worth 205 billion won ($144 million) due on Sept. 29.  Authorities will closely monitor the market unease. Authorities will swiftly resume buying corporate debt via a 1.6 trillion won ($1.1 billion) bond stabilization fund established in 2020 and will prepare to increase its size according to the Financial Services Commission.

Taiwan’s TWSE Index declined 3.54% on consolidation amidst weaker electronics demand outlook. Taiwan’s industrial production fell 4.8% in September, below consensus of a 0.4% increase and the prior month’s 3.68%. The decline ended 31 consecutive months of gains. Taiwan’s central bank reported a total brokerage securities account balance for September of NT$3.663tn, a significant drop of NT$160.8bn MoM, marking the second highest monthly decline in history. The M1B and M2 growth rates dropped to 6.58% and 6.83% respectively for September, indicating a lack of liquidity for the stock market.

Singapore’s STI declined 1.19%.  Singapore’s annual inflation rate was at 7.5% in September, unchanged from August’s figure of more than 14-year high, in line with market estimates. Food prices rose by 6.9%, the most since October 2008, after gaining 6.4% in August. On a monthly basis, consumer prices went up 0.4%, the least since a fall in April, slowing from a 0.9% rise in August.

Malaysia’s KLCI gained 4.71%. Malaysia’s headline inflation declined to 4.5% in September from 4.7% in August, as lower inflation in the prices of fresh chicken, fresh vegetables, and fuel more than offset higher core inflation. According to Bank Negara Malaysia (BNM), Malaysia’s pre-determined short-term outflows of foreign currency loans, securities and deposits, which include scheduled repayments of external borrowings by the government and the maturity of foreign currency BNM interbank bills, amount to US$11.18 billion (RM52.85 billion) for the next 12 months. This latest projected foreign currency outflow figure is an increase over the previous forecast of US$9.4 billion.

Thailand’s SET Index gained 1.21%. Thailand’s exports rose more than expected in September, helped by increased shipments of food and industrial goods. Consumer confidence picked up for a fourth straight month in September, hitting an eight-month high, helped by a reduction in the Covid-19 infection rate and improved business activity following the relaxation of travel restrictions. The University of the Thai Chamber of Commerce (UTCC) reported that the consumer confidence index rose to 44.6 in September from 43.7 in August. It stood at 42.4 in July, 41.6 in June, 40.2.

Jakarta Composite Index gained 0.83%. Following the recent hike in fuel price in order to cut the government subsidies on fuels, the Indonesian government will reallocate some of the fuel subsidy budget to social spending in the form of cash transfers and wage subsidy until the end of the year. However, September consumer confidence Index fell 7.5 points from the prior month to 117.2. The reading reflected a strong sentiment despite being the lowest level since April, reflecting the impact of subsidized fuel price hikes earlier in the month. The October number improved to 120.3 as the impact of the fuel price hike faded.

The Philippines PSE Index gained 7.18% on a relief rally after sharp correction in the previous month.  Headline inflation rate accelerated to +6.9% YoY in September 2022 (Aug 2022: +6.3%; 9M2022: +5.1% YoY) on the back of larger rise in food and non-alcoholic beverage costs. Core inflation eased marginally to +4.5% YoY (Aug 2022: +4.6%).

Vietnam’s VN-Index fell 9.20% on fear of systemic risk. The State Bank of Vietnam (SBV) widened the VND trading band today to +/- 5%, from +/- 3% previously. SBV decided to put Saigon Commercial Bank (SCB) under special control to ensure normal operations and liquidity. As part of the special control measure, the central bank will select experienced and qualified personnel from state-owned commercial banks including Vietcombank, BIDV, Vietinbank and Agribank to join the SCB executive board.

The contraction in economic activities and slower economic growth outlook continued to worry global investors. The potential demand disruption from slower growth has started to be manifested in weaker corporate earnings guidance. The Federal Reserve’s pronouncements of its stance on rates hikes have continued to affect investors’ sentiment and bring about trading volatility. However, we think the market has already factored in a higher interest rate environment, somewhat, although many are hoping that the hikes will stop sooner rather than later.

The corrections in recent periods present opportunity, especially in Asia ex. Japan, in particular Chinese equities on depressed valuation. The positive impacts of expansionary Chinese policies to support economic activities and improving Covid-19 situation in China would improve economic activities. The conclusion of the China’s 20th National Congress reaffirmed General Secretary Xi Jinping political power which was viewed negatively by foreign investors.  The on-going Russia-Ukraine conflict and its significant impact on energy, food and other commodities will continue to weigh on investor sentiments.

We are 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 economies in general as well as on specific sectors.  US policy responses will continue to face headwinds going into 2022. Tapering and rate hikes in 2022 will affect liquidity and increase cost of borrowing in the system, not just in the US but worldwide. In Asia, the focus is on China’s policy measures to spur economic activities and revive growth in the property sector, and how that might be impacted by China’s responses to Covid-19 situation there.

While we are more cautiously optimistic, there remains headwind for risk assets, including rising bond yields and interest rate hikes, and the relatively high commodity prices (although these have come off to some extent), as well as the still relatively high valuations in the developed markets. The heightened geo-political issues between China and US, and the tension between US/Europe and Russia over Ukraine 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 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 endeavor to protect and grow your capital.


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