Market Review October 2023
Markets continued to trend lower in September 2023, with the markets in Far East ex-Japan overall faring better than the developed markets. The MSCI Far East ex-Japan Index declined 3.82%, while the MSCI World Index fell 4.45%. The Far East ex-Japan markets declined due to weaker than expected economic activities in China and foreign fund outflows. The ASEAN Index performed slightly better, declining 3.68%. Markets that performed relatively better were Philippines (+2.36% in local term), Singapore (-0.49%) and Indonesia shares (-0.19%), while the laggards were Thailand shares (-6.04%), Vietnam shares (-5.71%) and Korea shares (-3.57%). Regional currencies were mostly weak against the USD. The best performing currencies were Philippines Peso (+0.04%) and Chinese Yuan (-0.54%), while the laggards were Thai Baht (-4.25%) and Korean Won (-1.87%).
Major US indices eased after a few months of strength. During the month, Fed increased interest rate by 25 bps in line with market expectation. The market retreated on profit taking and allocation shift to safer assets class on strong treasury yields. The threat of federal government shutdown added to negative market sentiment. Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq Composite returned -3.50%, -4.87% and -5.81% respectively. The headline Consumer Price Index (CPI) increased slightly in August to 3.7% YoY due to higher food and energy prices, while core CPI decelerated to 3.9%, below July’s 4.0% YoY, the first time in two years.
The Stoxx Europe 600 Index declined 1.74% following US indices correction. Business surveys remained subdued in September, with the Composite PMIs for the Euro area still in “contraction” territory, registering 47.1. Eurozone inflation slowed by more than anticipated in September: the headline rate fell to 4.3%, while core inflation eased to 4.5%. The ECB raised its deposit rate by 25bps, to 4%.
Hong Kong and H shares indices declined on continued foreign fund outflows. Hang Seng Index and Hang Seng China Enterprises Index declined 3.11% and 2.91% respectively on concerns over weaker than expected economic activities. China’s A shares index also declined 2.01%. Despite incremental initiatives and policies to help boast economic activities and confidence, they were insufficient to excite investors. PBOC announced a slew of measures to support property market and ease financial burden on homeowners. China is witnessing the biggest flight of capital in years, creating concern for authorities as it worsens pressure on the beleaguered yuan which plumbed a 16-year low, spurred by a widening interest-rate gap . Of the US$49 billion [comment-I assume the nos are in US$] outflow from the capital and financial account last month, US$29 billion came from securities investments, according to data from the State Administration of Foreign Exchange.
South Korea’s KOSPI Index declined 3.57% reflecting risk aversion on risk assets. The size of local major bank’s household loans that have potential risk of default has increased to approximately W2.4 trillion as at August 2023, rising +34% compared to June 2022 amid continuously rising yield. The surge in household bank debt at risk of default does not bode well for domestic consumption. On the positive side, South Korea’s trade data indicated the trend of declining exports moderated further in the first part of September, raising hopes for a return to growth later this year. Daily shipments decreased 7.9% on average in the first 20 days of the month compared with a year earlier according to the customs office. That’s a smaller drop than the 8.3% decline for the full month of August.
Taiwan’s TWSE Index declined 1.69%. The movement of the technology heavy Taiwan index reflected the sharp correction in global technology stocks. Taiwan export orders totaled US$46.04bn in August, down 3.5% MoM (down 1.8% seasonally adjusted) and 15.7% YoY. The decline widened from last month’s 12% drop, and was worse than economist forecast of an 11% YoY decline and consensus of an 11.4% YoY decline.
Singapore’s STI declined 0.49%. The annual inflation rate in Singapore further slowed to 4% in August 2023 from 4.1% in the previous month, in line with market expectations. This marked the lowest rate since January 2022. Meanwhile, the annual core inflation rate eased to 3.4%, marking the softest rise since April 2022.
Malaysia’s KLCI declined 1.91%. Malaysia’s economy will grow at a slower pace in 2023 according to the government official cited slowing global growth and rising commodity and food prices. Malaysia had earlier forecast its economy would grow 5.3% to 6.3% this year, with the central bank saying last month that it could be in the upper end of the range.
Thailand’s SET Index declined 6.04%, the worst performer in the region, on risk aversion as there were market concerns on disagreement on policies direction between the Prime Minister and the finance minister. The central bank raised its policy rate by 0.25% to 2.50%. Thailand’s latest trade balance moved to a small surplus of US$ 0.36 billion compared to US$ 1.98 billion deficit in July reflecting a potential slowdown in external demand. For the first time in eleven months, shipments increased by 2.6% YoY to US$ 24.28 billion, beating the previous forecast of a 4% fall.
Jakarta Composite Index declined 0.19%. Indonesia’s exports shrank 21.21% from a year earlier to US$ 22 billion in August 2023, compared with market forecasts of a 22% fall, following a marginally revised 18.10% drop in July. It was the third straight month of decline in exports and the steepest fall since April, amid moderating commodity prices. For the first eight months of 2023, shipments shrank by 11.85% YoY. In 2022, Indonesian exports surged 26.07%. President Joko Widodo officially launched the carbon trading market in the country as a commitment toward reduction in GHG and net zero emission target in 2060.
The Philippines PSE Index stood out with a gain of 2.36%. The government budget deficit surged by 85% to PHP 133 billion in August 2023 from PHP 72 billion in the corresponding month of the previous year. Government revenues fell by 6.58% to PHP 310.6 billion due to a decline in tax and non-tax receipts by 5.82% and 17.05%, respectively. Meanwhile, expenditures increased 9.66% from a year earlier to PHP 443.6 billion. For the January-August period, the country’s budget deficit declined by 12% yoy to PHP 732.5 billion, compared to PHP 833 billion in the same period last year.
Vietnam’s VN-Index declined 5.71% on profit taking. Vietnam and the US took a significant step forward by upgrading their relationship to a Comprehensive Strategic Partnership (CSP). This is the highest level of diplomatic ties within Vietnam’s three-tier hierarchy. In a joint statement, the two nations explained that they are committed to enhancing cooperation in several areas, including economic, trade and investment cooperation. The CSP will enhance bilateral trade between Vietnam and the US, particularly boosting exports to the US.
The string of rate hikes since 2021, 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. In the near term, investors will refocus on upcoming third quarter US corporate earnings announcement. 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. Geo-political developments will remain on investors’ radar screen. 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 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, though risk remains. In Asia, the focus is on the pace of China’s economic recovery. China’s economic data post-Covid have 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 high interest rate and slower economic activities in 2023, particularly 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 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
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