Monthly Review December 2020
Dear Valued Investor,
In November 2020, the MSCI Far East ex-Japan Index was up by 7.93%, while the MSCI World Index soared 12.66%.
The Dow Jones Industrial Average Index (DJIA) gained 11.84% over the month, while the S&P 500 index was up 10.75% and the Nasdaq Composite Index rose 11.80%. Wall Street major indexes set record high once again in November as investors reacted to Democrat Joe Biden’s projected win in the US presidential election. Stocks then received further boost on reports from pharmaceutical giants that their COVID-19 vaccines were more than 90% effective in preventing COVID-19. Sentiment was also boosted at the end of the month on reports that Biden planned to nominate former Fed chair Janet Yellen as Treasury Secretary, which could shift the focus heavily toward efforts to tackle growing economic inequality. The US Dollar index dropped 2.31% in November.
In the Eurozone, the Stoxx Europe 600 Index was up 13.73%. European stocks gained on COVID-19 vaccine progress. Airline stocks in the region were up more than 45% month to date. The talk between UK and the European Union are heading into an important week with the time running out for the two sides to iron out lingering disagreements over their post-Brexit trading relationship.
China CSI 300 Index gained 5.64%, while the Hang Seng Index was up 9.27%. The Biden victory, in addition to the vaccine development, triggered notable rotation to value/cyclical stocks as investors started factoring in a more accommodative US-China trade relationship. In Hong Kong, the SAR Chief Executive delivered the 2020 policy address that included an additional relief measures with USD600 mil support to tourism industry and removal of double stamp duty for commercial properties.
The South Korean market soared 14.30% in November. The Bank of Korea decreased its dovish bias and upgraded the 2020/2021 GDP growth outlook from 2.8% to 3% growth in 2021. Korea’s consumer sentiment rose 6.30 points to 97.9 in November following October’s rebound, signalling economic rebound.
In Taiwan, the index rose 9.38%. The performance was driven largely by the Tech sector while Industrials also outperformed. Extremely tight foundry capacity facilitated price hikes and diminishing chances of an inventory correction supported logic semis share prices.
Singapore’s STI gained 15.76% in November. Singapore will tighten border measures for travellers who have been to Malaysia or Japan amid resurgence of COVID-19 cases in those countries. Singapore’s October PMI was at 50.5 compared to 50.3 in September. On the other hand, Singapore’s September retail sales contracted 4.5% m.o.m compared to 1.8% expansion in August.
Malaysia’s KLCI was up 6.53%. The market’s gains were tempered by heightening Covid-19 cases in the country. On 24th November, Malaysia recorded a new high of 2,188 daily new infection. The majority of the new cases were related to a cluster that is linked to Top Glove’s factories in Klang. In November, the four sectors that posted the highest gains were Energy (+24%), Transport (+15.7%), Finance (+14.9%) and Construction (+12.9%).
In Thailand, the SET index soared 17.86%. The central bank pledged new measures to stem the Thai Baht rally follow its assessment earlier that the currency’s rapid gain may affect Thailand’s economic recovery. On top of that, the central bank held the benchmark interest rate at 0.5% and said fiscal policy remained key to drive growth.
The Jakarta Composite Index (‘JCI’) climbed 9.44%. Bank Indonesia cut the benchmark rate by 25 basis points to a record low of 3.75% as inflation remained subdued and financial markets were relatively stable. The central bank expects inflation to remain below the 2% to 4% target this year.
In the Philippines, the PSEi gained 7.39% in November. Aside from the hype on the vaccine, the market continued to pick up pace in November as foreign fund flows are slowly re-entering the Philippines on the back positive news flow, starting with encouraging 3Q20 earnings reports and improving COVID-19 situation in the country.
Vietnam’s VN-Index was up 8.39% m.o.m. Vietnam reported its slowest inflation this year while exports rose in November even as the COVID-19 pandemic continues to hinder trade activity. Gains in consumer prices slowed for a fourth month to 1.48% y.o.y in November on declines in fuel, travel and transportation costs. Exports climbed to 8.8% y.o.y in November.
Crude oil price (WTI) soared 26.68% to USD45.34 per barrel in November, while Brent crude climbed 27.04% to USD47.59 per barrel. A surprise decline in US crude supplies and expectation of OPEC+ holding the output hike underpinned the rally. Crude palm oil (CPO) prices gained 6.06% to RM3,449/MT in November.
We think Biden winning the Presidency will likely lead to a more accommodative US-China trade relationship, leading to easing of the trade war risk and less market volatility. However, the underlying tension in terms of differences in ideology and competition for trade and technology dominance and geo-political influence is not expected to disappear. Globally, we have yet to shake off the scourge of Covid-19 pandemic. However, countries are determined to press on with progressive reopening of businesses and their borders to international travel. We are of the view that the worst in terms of the economic impact of the pandemic is likely to be over and countries are on the road of recovery, though instances of resurgence continue to appear. The availability of vaccines will hasten this process. To-date, despite the COVID-19 pandemic which has trampled the economy, US stock indices, in particular NASDAQ, have recovered very well since the market bottom in March 2020, driven by unprecedented fiscal and monetary injections. In terms of valuation, the US market is now the highest over the last 16 years. We remain cautious in the near term. The market can expect bouts of volatilities.
The resulting market volatilities may provide opportunities to increase exposure in value stocks that are sold down well below their intrinsic value. Also, despite the significant market recovery as shown by the market indices, there are still stocks with good fundamentals that are trading at depressed prices. Hence, we will be watchful for valuations that have become compelling, especially for quality stocks that have strong foreseeable earnings growth with low gearing. At the same time, as we never fully invest at all times, we may seek to trim our equity exposure on stocks which have rallied beyond their fundamentals.
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