Market Review February 2023
The best performing regional indices were Vietnam shares (+10.34% in local currency term), Korea shares (+8.44%) and Taiwan shares (+7.98%), while the laggards were Malaysia (-0.67%), Indonesia (-0.16%) and Thailand (+0.17%). Regional currencies were strong against the USD. The best performing currencies were Thai Baht (+5.1%) and Indonesia Rupiah (+3.7%), while the laggards were Vietnamese Dong (+0.8%) and Singapore Dollar (+1.9%), although they still appreciated against the USD.
For the month of January 2023, the MSCI Far East ex-Japan Index gained 10.38%, compared to the MSCI World Index’s 7.00% gain. The outperformance of the Far East ex-Japan markets was driven by sharp gains in North Asia risk assets. The ASEAN Index underperformed.
Major indices in the US gained on benign inflation figure. The headline consumer price index (CPI) dropped to 6.5% in December from 7.1% mainly due to energy and food cost moderation. In combination with a stronger-than-expected GDP print of 2.9% (seasonally adjusted annual rate), the inflation data led investors to position for slower rate rises from the Federal Reserve. Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq Composite returned +2.83%, +6.18% and +10.68% respectively. The Federal Reserve (Fed) raised its policy rate by 50 basis points (bps) in its December meeting, slower than the 75 bps increases in previous meetings.
The Stoxx Europe 600 Index gained 6.67%. The European Central Bank raised its policy rate by 50 bps in the month. The flash eurozone composite purchasing managers’ index for January registered a seven-month high, coming in at 50.2 after 49.3 in December. Inflation edged lower again in December. The annual inflation rate was 9.2% compared to 10.2% in November. The highest contribution to inflation came from food, alcohol and tobacco, with energy in second place as natural gas prices remained below their elevated levels in 2022.
Hong Kong and H shares indices gained, with Hang Seng Index and Hang Seng China Enterprises Index gaining 10.42% and 10.74% respectively. China’s A shares index also gained 7.37%. Market sentiments continued to improve on the back of continuation of China’s expansionary monetary policies and the normalization of economic activities following removal of Covid restrictions. The loosening of the regulatory controls on China’s technology companies also bolstered risk asset performance.
South Korea’s KOSPI Index gained 8.44% Korea central bank raised rates by 25bps to 3.5% from 3.25% for a seventh consecutive hike amid the ongoing battle against inflation. South Korea posted a record trade deficit in January as exports weakened further, raising concerns that the economy may fall into recession amid deteriorating semiconductor demand and persistently elevated energy prices.
Taiwan’s TWSE Index gained 7.98% on the back of rebound of global technology shares which boosted investors’ sentiment. For the October-December period, annual gross domestic product (GDP) contracted by 0.86% from the same period a year earlier, compared with 4.01% growth for the previous quarter, preliminary data from the statistics agency showed.
Singapore’s STI gained 3.52%. Singapore’s economy expanded 2.2% YoY in 4Q22, compared with market consensus of 2.1%, and after a 4.2% increase in 3Q, an advance estimate showed. The latest figure marked the eighth straight quarter of growth in the economy but the softest pace since 1Q21, as the manufacturing sector shrank (-3% vs 1.4% in 3Q) due to falls in electronics, chemical, and biomedical clusters.
Malaysia’s KLCI declined 0.67%. Annual inflation rate slowed to 3.8% in December from 4% in November and below market estimates of 3.9%. The December reading was the lowest since June, helped by easing food inflation.
Thailand’s SET Index gained 0.17%. Consumer and business sentiment in December rose to the highest level in three years, driven by Thailand’s economic recovery and a surge in foreign tourist arrivals.
Jakarta Composite Index declined 0.16%. The Indonesia Manufacturing PMI remained healthy at 50.9 in January 2023, pointing to the 7th straight month of growth since June 2022. Both output and new orders expanded at higher rates, amid upturns in purchasing activity and employment
The Philippines PSE Index gained 3.45%. Factory activities in the Philippines continued to expand in December, hitting a six- month high, thanks to a rise in production and new orders. The S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) jumped to a six-month high of 53.1 in December, from 52.7 in November, indicating a solid improvement in the manufacturing sector.
Vietnam’s VN-Index gained 10.34% on bargain hunting. The headline inflation edged up to +4.5% in December (vs. +4.4% in November) as increases in utilities and education costs offset a decline in transport inflation. Foreign direct investment continued to increase. Apple and Samsung supplier of electronic displays, BOE Technology, plans to invest up to US$400m to build two new factories in Vietnam.
The contraction in economic activities and slower economic growth outlook continued to worry global investors. However, the easing of inflation rate in recent months has improved investors’ sentiment. The US headline consumer price index (CPI) dropped to 6.5% in December from 7.1% mainly due to energy and food cost moderation. The market had shifted its focus in the near term to corporate earnings announcement to re-calibrate assumption and outlook.
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 remain 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 worldwide. The market seems to have factored in a peak in interest rates in 2023. In Asia, the focus is on China’s policy measures to spur economic activities and revive growth in the property sector, and the pace of economic growth resumption following China’s pivot away from 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 between China and US, and that 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 endeavor 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.