Market Review September 2024
Risk assets in most markets moved higher in August 2024 despite a sharp sell down at the start of the month. The Far East ex-Japan index underperformed vis-a-vis the developed markets. The MSCI Far East ex-Japan Index gained 2.01%, while the MSCI World Index gained 2.51%. Among the Far East ex-Japan markets, ASEAN equities performed well with a return of 6.82%. Appreciating currencies attracted fund flow into Asean markets. Indonesia shares (+5.72%) and Malaysia shares (+3.27%) were the top performers in August. The laggards were China A shares (-3.51%) and Korea shares (-3.48%). Regional currencies were strong against the USD. The best performing currencies were Malaysia Ringgit (+6.29%), Indonesia Rupiah (+5.21%) and Thai Baht (+4.41%), while the weaker ones were Vietnamese Dong (+1.56%) and Chinese Yuan (+1.91%) though they still registered gains against the USD.
Major US indices performance was positive amidst a shift of investor focus to potential interest rate cut in coming months. The US economy remained resilient. Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq were up 1.76%, 2.28% and 0.65% respectively. US core inflation remained at comfortable level of 2.6% Year-on-Year in July, but it is still above the Fed’s long-term target of 2%. The US composite Purchasing Managers’ Index (PMI) remained firm at 54.1 in August compared to 54.3 in July, suggesting overall activity continued to expand. However, US manufacturing PMI recovered to 47.2 from 46.6 a month ago, reflecting improving factory activity.
The Stoxx Europe 600 Index gained 1.33%. In the eurozone, the boost to the French service sector from the Olympics resulted in the eurozone composite PMI (Purchasing Managers’ Index) coming in higher than expected. However, the overall economic backdrop remained weak. The PMI strengthened in August to 51.0 versus 50.2 in July.
Hong Kong and H shares indices rebounded on improved sentiment over stimulus measures to boost domestic consumption. Hang Seng Index and Hang Seng China Enterprises Index returned +3.72% and +3.67% respectively whist A shares declined 3.51%. External demand remained healthy with export growth for July increasing by 7% Year-on-Year. China’s NDRC and The Ministry of Finance announced the allocation details of the Rmb300bn ultra-long-term special government bond, which included subsidies for both passenger vehicle (PV) and commercial vehicle (CV). PV trade-in subsidy doubled.
South Korea’s KOSPI Index declined 3.48%. The Bank of Korea maintained its interest rate unchanged at 3.5% for the 13th consecutive session due to concerns over rising property prices. On fiscal policy, the government calls for greater fiscal policy roles in the face of weak domestic demand and longer-term growth momentum. The finance ministry proposed a 3.2% on-year increase in next year’s budget to 677.4 trillion won (US$509.71 billion). Last year, it proposed 2.8% budget growth for 2024.
Taiwan’s TWSE Index gained 0.31% on bargain hunting. Taiwan lowered its forecast for gross domestic product (GDP) growth in 2024 to 3.90%, citing a weaker-than-expected export performance. The Directorate General of Budget, Accounting and Statistics (DGBAS) lowered Taiwan’s GDP growth forecast for 2024 by 0.04 percentage points from the previous estimate of 3.94% made in May to 3.90%, while it anticipated economic growth in 2025 to hit 3.26%.
Singapore’s STI decline 0.38%. Singapore’s headline inflation in July 2024 stayed stable at 2.40% Year-on-Year, while core inflation eased to 2.50% Year-on-Year (June: 2.90%), both below Bloomberg consensus’ forecasts, due to lower inflation across all categories. Trade data remained strong with Singapore’s July 2024 NODX coming in above Bloomberg consensus, expanding by 15.7% Year-on-Year, (June: -8.80%).
Malaysia’s KLCI gained 3.27% on continued strong domestic fund support amid buoyant sentiment. The index gain was built on the 5.01% rise recorded in July. Foreign investors added another RM 2.5bn flow as net buyers in August 2024, almost double the July 2024 net buy flows of RM1.3bn. The August 2024 net buy flows were the highest monthly net buy flows by foreign investors in 2024. The Malaysian economy advanced by 5.90% in the second quarter of 2024 (1QFY2024: 4.20%). The growth is driven by stronger domestic demand and further expansion in exports. Household spending increased amid sustained positive labour market conditions and larger policy support.
Thailand’s SET Index gained 2.89% on bargain hunting as political uncertainty eased following the election of Miss Paetongtarn Shinawatra as new prime minister on 16 Aug. Thailand’s GDP grew 2.30% in 2QFY2024, surpassing forecasts and improving from 1.60% in 1QFY2024. Growth was driven by stronger exports and modest import growth, while private consumption slowed. Government spending saw a slight increase after several periods of decline, and industrial output rebounded. The Bank of Thailand (BOT) kept its key interest rate at 2.50%, marking its fifth consecutive meeting without a change.
Jakarta Composite Index continued to gain momentum, adding 10.83% on foreign inflow. The gain was much better than the 3.18% recorded in July. Indonesia’s economy grew by 5.05% Year-on-Year in the second quarter of 2024. On the production side, Accommodation and Food Service Activities experienced the highest growth at 10.17%. Meanwhile on the expenditure side, households’ consumption component experienced the highest growth at 9.98%.
The Philippines PSE Index gained 4.21%, extending the 3.40% gain in July. The second-quarter economic expansion was the fastest since the 6.40% annual growth in the first quarter of 2023, beating the 6.20% estimate in a Reuters poll of economists and outpacing the upwardly revised 5.80% growth in the first three months of the year. Consumer spending grew 4.60% in the period, accounting for two-thirds of output. Investments increased 11.50% while government spending expanded by 10.50%.
Vietnam’s VN-Index gained 2.59% on policy initiatives to strengthen investors’ confidence. The latest draft amendment to the Securities Law is expected to be submitted to the National Assembly in October 2024. Key highlights include (i) stricter criteria for professional investors; (ii) allowing commercial banks and foreign bank branches to clear and settle transactions in both the equity and derivative markets; (iii) establishing a legal framework for the VSDC (Vietnam Securities Depository and Clearing Corporation) to create a subsidiary to serve as the central clearing counterparty (“CCP”) of transactions; and (iv) increasing investment limits for fund management companies from 10.00% to 15.00% for a listed company and from 30.00% to 35.00% for a group of related companies.
After many months of rate hikes by the US Fed since 2022 to beat inflations, the easing of inflation rate in the US in recent months has raised market expectations that that rates may start to fall. The market has been hopeful of rate cuts starting as early as March, but the prospect of this happening has been pushed back to the second half of 2024. While the latest inflation data remained sangiune, and the 12-month rate of price increase has slowed to 2.60%, it was still above the Fed’s 2.0% target, and the Fed had indicated that it would wait to see more inflation and labour market data before deciding on any rate cut. Market attention is focused on the Fed’s rate decision at its meeting in September, with high expectations for a rate cut.
So far, resilient US economic data and the prospect of US rate cuts have boosted investor sentiments and pushed the US stock market higher, breaching new historical high. Investors have been pricing in expectation of a lower interest rate environment as early as second half of 2024. This, coupled with corporate earnings reports that have so far been better than expected, has kept investment sentiment buoyant, despite the US market’s elevated valuation and continuing geo-political tensions. Some observers have pointed to some downside risks to economic activity. Any adverse change in the US economic growth trajectory and its consequent effect on corporate earnings would have significant impact on the market. Escalation of geo-political conflicts could also have major adverse implications for the markets. In the near term, any surprise in the Fed decision on rates in September can be expected to have major impact on the markets.
We are watchful of geo-political developments as well as policy directions in the major economies, in particular US and China. The continuing Israel-Hamas conflict, and the risk that it may potentially spread in the Middle East, has added to the uncertainties. US economic and inflation data and interest rate policy responses will affect market sentiments and liquidity. Adding to the market uncertainties will be whether it will be Donald Trump or Kamala Harris who will emerge winner in the November 4 US Presidential election, and what it will mean in terms of US economic and foreign policy changes. 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 and growth will have positive catalyst for China’s economy and risk assets. The Chinese government continues to bring forth various measures to help the economy. It may take time for the initiatives to bear fruits.
While we are cautiously optimistic, there remains headwind for risk assets, including continuation of high interest rate and its impact on business and economic activities, and slower than expected economic growth in China, as well as the historically high market valuations in the US. The continuing geo-political tension in Europe, Middle East and in East Asia will keep risk premium elevated at times and result in markets volatility. We will be watchful on these.
The prolonged sell down of Chinese equities and their depressed valuation may offer potential upside should supportive and expansionary Chinese policies to bolster economic activities meet with success.
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 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.