Monthly Review May 2020
In April 2020, the MSCI Far East ex-Japan Index up 8.21%, while the MSCI World Index gained 10.80%.
The Dow Jones Industrial Average Index (DJIA) jumped 11.08% over the month, while the S&P 500 index gained 12.68% and the Nasdaq Composite Index was up 15.45%, representing their best monthly gains since 1987 and their best April performances since 1938, according to Dow Jones Market Data. Market sentiment improved on the back of a slowing COVID-19 global infection rate, partial relaxation of lockdown in various countries and stronger than expected recovery in China’s activity data. The US Dollar index was down by 0.03% in April.
In the Eurozone, the Stoxx Europe 600 Index was up by 6.24% as a potential treatment for the COVID-19 disease cheered investors while governments also began announcing ways to reopen economies.
The China A-shares were up 6.14%, while the Hang Seng Index closed 4.41% higher. While much of the rest of the world continues to move along the COVID-19 infection curve, China led in its fight against the virus and reported no new locally transmitted cases. It decided to remove the lockdown on Wuhan, and allowed business, economic and social activities to progressively open. Reflecting the severity of the pandemic toll, China real GDP contracted 6.8% y.o.y in 1Q2020. It is the first time China has reported an economic contraction since 1976. However, the data showed sign of recovery with March macro data having rebounded from the dismal January-February numbers. The Hong Kong government announced additional relief measures of HKD137.5 bil (~4.8% of GDP) in April to support the private sector, including providing wage subsidies to eligible employers and enhancing the SME financing guarantee scheme.
The South Korean market gained 10.99%. Bank of Korea maintained the base policy rate at 0.75%, after a 50bp emergency cut in March. South Korea is preparing for a third supplementary budget and a 40 tril Won (USD32.4 bil) fund to sharply increase subsidies to keep more Koreans in jobs and help businesses stay afloat through the course of the COVID-19 outbreak.
Meanwhile in Taiwan, the index advanced 13.23%. The tech sector was the outperformer, driven by positive 5G outlook due to China’s aggressive 5G ramp up, and increasing PC and server demand driven by working from home requirements.
Singapore’s STI was up 5.76% in April. Singapore saw spiking of COVID-19 cases and implemented more stringent control measures with the view to cutting the spread. The vast majority of new COVID-19 cases are work permit holders residing in foreign worker dormitories. The government also introduced additional financial assistance, both to businesses and to employees, including self-employed persons.
Malaysia’s KLCI rose 4.21% m.o.m. The government extended the movement control order (MCO) twice during the month. The first extension was from 14th to 28th April and the second extension was from 28th April to 12th May, in order to slow the spread of COVID-19. The government also announced a fourth COVID-19 related stimulus package of RM10 bil to assist the SME sector.
In Thailand, the SET index gained 15.61%. Thailand plans to pay 10 million farming households a cash handout of 15,000 baht at a cost of USD4.6 bil in its latest effort to mitigate the impact of the COVID-19 outbreak.
The Jakarta Composite Index (‘JCI’) was up 3.91%, while Indonesia Rupiah appreciated 7.54% m.o.m. Indonesia extended stringent social distancing rules in Jakarta as the capital region continues to be the epicentre of infections in the country. The large-scale social distancing measures, which include a ban on gatherings of more than five people, limited public transport services and mandatory work-from-home requirements, were extended to 22th May.
In the Philippines, the PSEi gained 7.13%. The government extended the Enhanced Community Quarantine (ECQ) until 15th May for Metro Manila, and other major economic hubs in Luzon, Cebu and Davao in a bid to contain the spread of COVID-19. While the ECQ was lifted in some parts of Luzon, most of the economic activity in the Philippines lies within the areas newly placed in ECQ or remaining in ECQ. The remainder of the country was placed under a General Community Quarantine (GCQ), a relaxed version of the ECQ.
Vietnam’s VN-Index advanced 16.09% in April. After a long discussion, the Vietnamese government decided to allow most of the country’s cities/provinces to reopen, and definitively classified 59 out of 63 provinces as low-risk for COVID-19.
Crude oil price (WTI) slid 8.01% to USD18.84 per barrel in April, while Brent crude gained 11.13% to USD25.27 per barrel. Despite a positive OPEC+ agreement early in the month, record oil oversupply and related storage concerns drove unprecedented energy price moves, including a 40% drop in Brent to sub USD20/bbl and an intra-week drop in WTI to -$37/bbl. Crude palm oil (CPO) prices tumbled 17.57% to RM2,102/MT in April.
The COVID-19 outbreak has started to show sign of slowing down and the global stock markets have rebounded strongly in the month, helped by improvement in the COVID-19 situation in a number of countries and partial relaxation of lockdown in various countries. We believe that the actions taken by various governments in controlling the spread of the disease and in helping businesses and their people mitigate the financial impact will help the markets to bounce back fairly quickly when it is clear that the pandemic has been brought under control. However, one can expect that this can be more prolong than was the case with SARS, given the uncertain nature of this novel corona virus and the fact that different countries are going through a different epidemic control cycle. Furthermore, we will need to mindful of a potential new source of market volatilities: the emerging tension between the US and China arising from Trump’s attempt to put the blame on China and hold it accountable for the COVID-19 pandemic.
While it is as yet unclear how long it would take the COVID-19 pandemic and its collateral issues to play out and the economic impact is expected to be felt for some time, the market uncertainties and the attendant volatilities would provide investment opportunities in value stocks that are sold down well below their intrinsic value. 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.