Market Review March 2023
The best performing regional indices were Taiwan shares (+1.56% in local currency term), Indonesia shares (+0.06%) and Korea shares (-0.50%), while the laggards were China H shares (-11.36%), Hong Kong (-9.41%) and Vietnam (-7.78%). Regional currencies were strong against the USD. The best performing currencies were Vietnamese Dong (+4.53%) and Korean Won (+4.60%), while the laggards were Taiwan NT (+0.32%) and Malaysia Ringgit (+0.93%), although they still appreciated against the USD.
For the month of February 2023, the MSCI Far East ex-Japan Index declined -7.23%, compared to the MSCI World Index’s -2.53% loss. The Far East ex-Japan markets underperformed on the back of profit taking in Chinese risk assets while the ASEAN Index outperformed.
Major indices performance in the US were mixed on higher than expected inflation figure. The headline consumer price index (CPI) lowered marginally to 6.4% in January from 6.5%, however it was higher than market expectation of 6.2%. The inflation data led the market to re-focus on interest rate risk factor. Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq Composite returned -4.19%, -2.61% and -1.11% respectively. The Federal Reserve (Fed) indicated that policy intervention was starting to work on curbing inflation, but that the policy rate may peak at a higher point.
The Stoxx Europe 600 Index was up +1.74%. The European Central Bank raised its policy rates by 50 bps in the month, and it expected to raise them further. Forward-looking data painted an encouraging picture for the euro zone economy. The flash Market composite purchasing managers’ index for February reached 52.3, up from 50.3 in January, indicating the strongest expansion of business activity since last May.
Hong Kong and H shares indices declined, with Hang Seng Index and Hang Seng China Enterprises Index declining -9.41% and -11.36% respectively. China’s A shares index also declined 5.70%. Corporate results announcements were generally weak which affected market sentiments. The market saw JD.com’s plan for a $1.5 billion subsidy campaign next month to compete with budget shopping app Pinduoduo early next month as foreshadowing greater competition in the e-commerce sector, triggering heavy profit-taking in the China technology sector.
South Korea’s KOSPI Index declined -0.50%. South Korea’s exports fell in February for a fifth straight month in annual terms, highlighting weak domestic and global economic conditions even though the downturn in output and orders eased slightly. The S&P Global’s seasonally adjusted purchasing managers’ index (PMI) for South Korean manufacturers stood at 48.5 in January, unchanged from December and remaining below the 50-mark since July 2022.
Taiwan’s TWSE Index up +1.56%. Taiwan cut its gross domestic product (GDP) forecast for 2023 to 2.21%, citing weakening global demand which has put the country’s export-oriented economy under pressure. The Directorate General of Budget, Accounting and Statistics lowered Taiwan’s GDP growth forecast by 0.63 percentage points from its previous forecast made in November to 2.12%, the lowest in eight years.
Singapore’s STI declined -3.06%. Singapore’s annual inflation rate ticked up to 6.6% in January from December’s 7- month low of 6.5%, but less than market forecasts of 7.1%. Singapore’s manufacturing production unexpectedly dropped by 2.7% YoY in January, missing market forecasts of a 2.9% growth and after a downwardly revised 2.6% fall a month earlier.
Malaysia’s KLCI declined -2.11%. Malaysia announced an expansionary market neutral budget. Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim unveiled the country’s 2023 budget of RM386.1 billion. This is more expansionary than the RM372.3 billion budget which the previous government had proposed.
Thailand’s SET Index declined -2.94%. The Bank of Thailand (BOT) released a ‘directional paper’ with the overall mission and policy framework to tackle high household debt-to-GDP in Thailand. BOT’s ultimate targets are to reduce household debt-to-GDP to 80% by 2028 which would affect domestic consumption going forward. The household debt-to-GDP stood at 86.8% in 3Q22. Thailand’s real GDP grew 1.4% YoY in 4Q22, softer than the 4.5% in 3Q22, and well below Bloomberg consensus of 3.6% due to slower domestic demand and declining exports.
Jakarta Composite Index gained +0.06%. Headline inflation eased to a 5-month low of +5.3% (vs. +5.5% in December 2022), while rising by a softer +0.3% on a MoM basis (vs. +0.7% in Dec). The Bank of Indonesia (BI) kept its key 7-day reverse repurchase rate unchanged at 5.75% during its February meeting, believing that that would be sufficient to keep inflation within its target corridor.
The Philippines PSE Index declined -3.49%. The central bank raised policy rate by another 50bps to 6.00%, sustaining the pace of outsized moves after inflation rose to a new 14-year high in January. Borrowing costs have risen by 400 bps since May last year to the highest since November 2008.
Vietnam’s VN-Index declined 7.78% on profit taking after strong performance in the previous month. Foreign direct investments into Vietnam plunged 16.3% from a year earlier to USD 1.35 billion in January 2023. FDI pledges, which indicate the size of future FDI disbursements, fell 19.8% YoY to USD 1.69 billion. The annual inflation rate in Vietnam increased to 4.89% in January of 2023 from 4.55% in December 2022.
The contraction in economic activities and slower economic growth outlook continued to worry global investors. However, the easing of inflation rate in recent months will continue to improve investors’ sentiment. The US headline consumer price index (CPI) dropped to 6.4% in January from 6.5% in previous, although it was higher than market expectations, leading to a re-focus on the interest rate risk factor. 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 world wide. The market seems to have factored in a peak in interest rates in 2023, however risk persists. 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 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.