Market Review November 2023
Markets worldwide remained in the correction mode in October 2023, with the markets in Far East ex-Japan overall faring worse than the developed markets. The MSCI Far East ex-Japan Index declined 4.09%, while the MSCI World Index fell 2.97%. The Far East ex-Japan markets declined across the board. The ASEAN Index declined 4.40%. Markets that performed relatively better were Malaysia (1.26% in local term), Taiwan (-2.16%) and China A shares (-3.17%), while the laggards were Vietnam shares (-10.91%), Korea shares (-7.59%) and Philippines shares (-5.50%). Regional currencies were mostly weak against the USD. The best performing currencies were Thai Baht (+1.15%) and Korean Won (-0.20%), while the laggards were Indonesia Rupiah (-2.67%) and Malaysia Ringgit (-1.46%).
Major US indices continued to ease after a few months of strength. The market retreated on profit taking and heightened geopolitical uncertainty surrounding the Israel-Hamas conflict. Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq Composite returned -1.36%, -2.20% and -2.78% respectively. The headline Consumer Price Index (CPI) remained stable in September at 3.7% YoY. The US economy grew 4.9% on an annualized basis in the third quarter while jobs report and retails sales data continued to suggest resilient economic activities. The strength of the economy was supported by buoyant consumer spending, which accelerated at a 4.0% rate after rising only 0.8% pace in the second quarter. It added to 2.69% points to GDP growth.
The Stoxx Europe 600 Index declined 3.68% following US indices correction. Bank surveys from the European Central Bank (ECB) showed a contraction in the supply of credit to households and businesses in the third quarter, while the eurozone composite purchasing managers’ index (PMI) fell 0.7 points to a preliminary 46.5 in October.
Hong Kong and H shares indices declined despite reporting strong third quarter Gross Domestic Product (GPD) figure. Hang Seng Index and Hang Seng China Enterprises Index declined 3.91% and 4.66% respectively on general weak sentiment over risk assets and lower than expected Golden Week consumption figures for China. China’s A shares index also declined 3.17%. The Chinese government announced more pump priming polices over the month. The government approved issuing additional Rmb 1 trillion sovereign bonds to support disaster relief and construction projects. Gross domestic product for the three months ended September expanded 4.9% YoY and 1.3% QoQ from the previous quarter, far exceeding economists’ expectations as government stimulus efforts appeared to take root.
South Korea’s KOSPI Index declined 7.59%, reflecting risk aversion on risk assets. Bank of Korea (BoK) kept the key rate unchanged for 6 consecutive sessions amid global risks and uncertainties. The CPI inflation ratcheted up to 3.7% in September, accelerating for a second month after six consecutive months of cooling.
Taiwan’s TWSE Index declined 2.16%. Taiwan’s exports unexpectedly grew in September for the first time in more than a year, adding to signs that global trade is recovering. Overseas shipments rose 3.4% YoY to US$38.8 billion last month, according to a statement from the Finance Ministry. That was better than the median estimate for a 2.5% decline in a Bloomberg survey of economists.
Singapore’s STI declined 4.65%. Singapore’s GDP grew by 0.7% YoY in 3Q23, exceeding market forecasts of 0.4% and after a 0.5% advance in 2Q, flash data showed, amid growing signs that the city-state’s recovery is gaining traction. The service sector continued to rise (1.9% vs 2.8% in 2Q). On a quarterly basis, the economy expanded 1.0% in 3Q, sharply accelerating from a downwardly revised 0.1% rise in 2Q and marking the second successive quarter of increase.
Malaysia’s KLCI increase 1.26%, holding up relatively well. Malaysia’s economy expanded 3.3% in 3Q from year earlier, accelerating from 2.9% in the three months ended June. However, the Ringgit plummeted to its lowest level in 25 years against the USD, dropping by 0.3% to 4.7635 per Dollar, marking its weakest performance since the 1997 Asian Financial Crisis.
Thailand’s SET Index declined 6.09%. Thailand’s exports surprisingly climbed 2.1% YoY to US$ 25.48 billion in September 2023, exceeding market expectations of a 1.75% decline and maintaining the momentum from the 2.6% growth the previous month even though global demand was weak. It was the second month of continuous growth aided by increased shipments of agricultural and forward rate agreement products amid a weakening economy. Exports fell 3.8% in the nine months of the year compared to the same period in 2022.
Jakarta Composite Index declined 2.70%. The Consumer Confidence Index (CCI) dropped sharply to 121.7 in September, down from 125.2 in August. The decline was primarily driven by the lower-income segments (i.e., those with a monthly income below IDR3.1 million), which experienced a more pronounced fall to 109 from 117 in August. In contrast, the upper-income segments (i.e., those with incomes above IDR5 million) saw a slight increase in confidence.
The Philippines PSE Index declined 5.50%. The annual inflation rate rose for the second month to 6.1% in September 2023, well above August’s and market expectations of 5.3%, and was the highest reading since May. The S&P Manufacturing PMI also rose in September to 50.6 from 49.7 in August, indicating a renewed expansion across the manufacturing sector at the end of the third quarter.
Vietnam’s VN-Index declined 10.91% on heavy profit taking from retail investors. There were market talks of potential interest rate hike on the back of weakness in currency. The risk that the State Bank of Vietnam may have to tighten its monetary policies resulted in weak market sentiment especially in the retail dominated Vietnam market.
The string of rate hikes since 2022, the duration of high interest rate environment and their impact on economic growth, in particular how severe the global economic recession will be, if any, will remain the focus of investors’ concern. The new geo-political risk arising from the recent Israel-Hamas conflict, and the risk that it may potentially spread in the Middle East has added to the uncertainties. The easing of inflation rate in recent months and resilient employment and consumption data have raised expectation of a soft landing for the US economy, although a recession can still not be ruled out. US economic and inflation data, and expectation on, and Fed’s rate decisions, will continue to have a major influence on investors’ investment decisions on risk assets. Meanwhile, investors are also having to contend with the implication of US 10-year government bond yield rising to historical highs and its ramification on US government finance and business costs, as well as on the US equity and bond markets.
The market corrections in recent periods would present opportunities, in particular in Chinese equities on depressed valuation and which may offer potential upside on expansionary Chinese policies to support economic activities.
We remain watchful of geo-political developments as well as policy directions in the major economies, in particular US and China. US economic and inflation data and interest rate policy responses will affect market sentiments and liquidity. In Asia, the focus is on the pace of China’s economic recovery which has been weaker than expected. The Chinese property sector continues to face severe challenges, and any sign of stabilization will have positive catalyst for the economy and risk assets. The Chinese government has made known its intention to take counter-cyclical policy measures to maintain a healthy economic environment.
While we are cautiously optimistic, there remains headwind for risk assets, including continuation of high interest rate and its impact on economic activities, and slower than expected economic growth in China, as well as the still relatively high valuations in the developed markets. The continuing geo-political tension in Europe and in East Asia, and the new conflict in the Middle East will keep risk premium elevated at times and result in markets volatility. We will be watchful on these.
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.