Market Review January 2023

The best performing regional indices were Hong Kong shares (+6.37% in local currency term), H-shares (+5.18%) and Thailand shares (+2.04%), while the laggards were Korea (-9.55% in USD term), Taiwan (-4.99%) and Indonesia (-3.26%). Regional currencies were mostly strong against the USD. The best performing currencies were Korean Won (+4.60%) and Vietnamese Dong (+4.53%), while the laggards were Taiwan NT (+0.32%) and Malaysia Ringgit (+0.93%).

For the month of December 2022, the MSCI Far East ex-Japan Index gained 0.67%, compared to the MSCI World Index’s 4.34% decline. The outperformance of the Far East ex-Japan markets was driven by sharp gains in Chinese risk assets. The ASEAN Index underperformed marginally within the Asia region.

Major indices in the US declined on higher interest rate as policymakers continued to raise interest rates and reiterated their hawkish policy stance. The flash S&P Global PMIs contracted further in December for both manufacturing (46.2) and services (44.4). Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq Composite returned -4.17%, -5.90% and -8.73% respectively. The US November headline CPI came in at 7.1% YoY, easing from the previous month. Core inflation, which exclude food and energy, reduced from a 40-year high and came to 6.0%.

The Stoxx Europe 600 Index gained 0.26% (in USD term). Euro area economic data were generally better than expected in December: the flash Composite PMI edged up again but remained in contraction territory while the German Ifo Business Climate Index, which is an early indicator of economic developments in Germany, moved higher for the consecutive months. Both eurozone and UK headline inflation rates turned lower in November, to 10.7% and 10.1% respectively. The European Central Bank raised its deposit rate by 50bps to 2%.

Hong Kong and H shares indices gained, with Hang Seng Index and Hang Seng China Enterprises Index gaining 6.37% and 5.18% respectively. China’s A shares index also gained 3.31%. Market sentiments improved on the back of continuation of China’s expansionary monetary policies and the government’s announcement of further easing of Covid restrictions, while committing to providing economic support and possible regulatory relaxation on internet platform companies at December’s Central Economic Work Conference.

South Korea’s KOSPI Index declined 9.55%  South Korea’s industrial output inched up 0.1% in November from October, marking the first growth in five months. The rebound was fueled by increased production in the mining and manufacturing industry, which grew by 0.4%.

Taiwan’s TWSE Index declined 4.99% as global technology shares correction affected investors’ sentiment. Taiwan’s industrial production declined for the third straight month in November, due to sharp contraction in the manufacturing and mining and quarrying sectors, according to preliminary data from the Ministry of Economic Affairs. Taiwan’s consumer confidence index also dropped for the fourth straight month in December to 59.12, hitting its lowest in over 13 years.

Singapore’s STI declined 1.19%. The S&P Global Singapore PMI declined to 56.2 in November from October’s of 57.7. This was the 24th straight month of expansion in the sector but the softest pace since August, due to a slowdown in demand expansion amid COVID-19 disruptions.

Malaysia’s KLCI gained 0.45%. Malaysia’s trade surplus increased in November as exports rose and import growth eased. The trade surplus rose to MYR 22.305 billion in November from MYR 19.287 billion in the same month last year.

Thailand’s SET Index gained 2.04%. The Bank of Thailand increased the policy rate by +25bps (to 1.25%) for the third straight meeting, in line with consensus expectations. Pressures for more aggressive hikes have eased as the Baht rebounded in recent weeks while inflation fell to a 6- month low of +6% in October.

Jakarta Composite Index declined 3.26%.  Indonesia’s consumer confidence index improved to 119.9 in December 2022 from 119.1 in the previous month, despite a decline in the index of current income due to rises in fuel prices and decrease in availability of jobs. Households’ sentiment about their current income weakened (down 2.3 points to 116.4), as did their views toward income expectations for the next six months.

The Philippines PSE Index declined 3.16%. Philippine headline inflation accelerated to 8% in November. The Monetary Board (MB) increased its overnight borrowing rate by 50bps, which has been widely expected by most analysts. The move followed the 50bps hike by the US Federal Reserve at its Dec. 13-14 meeting, which brought its own policy rate to 4.25-4.5%.

Vietnam’s VN-Index declined 3.94%. Vietnam’s total import-export revenue hit the highest-ever value of US$700 billion as of December 2022, exceeding last year’s record of US$600 billion, reported the General Department of Vietnam Customs. Vietnam continues to enjoy a trade surplus that has been maintained since 2012.

The contraction in economic activities and slower economic growth outlook continued to worry global investors. The Federal Reserve’s pronouncements of its stance on rates hikes continue to affect investors’ sentiment and bring about trading volatility. The lower November headline CPI at 7.1% YoY, easing from the previous month, improved investors’ expectation for a slowing pace of interest rate increase.

The market corrections in recent periods present opportunities, especially in Asia ex. Japan, in particular Chinese equities on depressed valuation. The positive impacts of expansionary Chinese policies to support economic activities, the pivot from the zero-Covid strategy and resumption of normalized business operating environment were viewed positively by the market.

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 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 in 2023, somewhat. In Asia, the focus is on China’s policy measures to spur economic activities and revive growth in the property sector, and the developments in China’s Covid-19 situation.

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 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.