Market Review February 2025
Recovering from a retracement in December 2024, developed markets risk assets made good gains in the first month of the new year The World index gained 3.47% against MSCI Far East Ex. Japan index’s 1.81% rise. ASEAN equities underperformed relatively with a return of -1.53%. Korea shares (+4.91%) were the top performers. The laggards were Philippines shares (-10.20%) and Malaysia shares (-5.20%). Regional currencies had a mixed performance against the USD. The best performing currencies were Thai Baht(+1.84%), Korean Won (+1.69%) and Vietnamese Dong (+1.61%), while the weaker ones were Indonesia Rupiah (-1.06%) and Philippines Peso (-0.67%).
Major US indices mostly gained with the return of Trump to the White House, whose pro-business stance and promises on deregulation and tax cuts are seen as positive for US equities. The US economy continues to show signs of strength, with 256,000 jobs added in December and healthy GDP growth of 2.3% annualized in the fourth quarter. Dow Jones Industrial Average (DJIA) and S&P 500 and Nasdaq Composite Index gained 4.70%, 2.70% and 1.64% respectively. Technology sector stocks, and Nvidia in particular, were impacted following release of open-sourced AI models that offer comparable performance at substantially lower costs than established AI names in the US. The US Composite Purchasing Managers’ Index (PMI) registered 52.7 in January, pointing to continuous expansion of overall activity. The Manufacturing PMI expanded to 50.9 from 49.2 a month ago, reflecting expanding factory activity.
The Stoxx Europe 600 Index chalked up a robust gain of 6.29%. The gains were supported by the financials and consumer discretionary sectors, on the back of solid global economic backdrop and tentative signs of improvement in the eurozone macro data. The eurozone composite Purchasing Managers’ Index (PMI) edged into expansionary territory at 50.2 in January. Meanwhile, retail sales came in at 1.2% Year-on-year for November, marking the fifth consecutive month of growth.
Hong Kong and H shares indices gained on continued talks of more stimulus measures by the Chinese government to boost domestic consumption. Hang Seng Index and Hang Seng China Enterprises Index gained 0.82% and 1.27% respectively. In contrast, Chinese A shares declined 2.99% on weak domestic investors’ sentiment. China will promote the role of consumption in the economy and move away from its sole focus on investment, according to the central bank governor, ushering in a shift in the growth model that’s come to define the country over the past two decades. “The priority of macroeconomic policy should shift from promoting more investment in the past, to promoting both consumption and investment, with more importance attached to consumption,” according to Pan Gongsheng (Party Secretary and Governor of PBOC) in a speech at the Asian Financial Forum in Hong Kong.
South Korea’s KOSPI Index gained on short covering, gaining 4.91%, following the previous month’s 7.47% correction. South Korea’s exports are likely to be weak in January due to a calendar distortion. Market estimate is for a 15.4% Year-on-Year drop, reversing a 6.6% increase in December. This January has four fewer working days than the same month in 2024. Adjusting for this difference, the average daily export growth will likely slump to 0.9% in January from 4.3% rise in December.
Taiwan’s TWSE Index gained 2.13%. Taiwan’s real GDP expanded by 1.84% Year-on-Year in the fourth quarter of 2024, slowing from the 4.17% growth in the previous quarter, according to advance estimates released by the Directorate General of Budget, Accounting and Statistics (DGBAS). On a seasonally adjusted annualized basis, real GDP grew 2.04%. Real private final consumption expanded by 1.94% on year, thanks to expenditures such as domestic shopping and services, outbound tourism, and higher securities and funds transaction fees due to robust financial market.
Singapore’s STI gained 1.80%. Singapore’s non-oil domestic exports (NODX) surged 9.0% Year-on-Year in December 2024, after a 3.4% growth in November, surpassing estimates of a 7.4% rise. It marked the fastest pace in NODX since August, due mainly to a sharp rebound in non-electronic product sales. Electronic product shipments grew by 18.6%, easing from a 23.1% surge in November. Exports increased mainly to Taiwan (50.8%), the US (30.7%), Thailand (27.3%), Malaysia (24.2%), Hong Kong (23.8%), and Indonesia (20.3%), while falling to China (-12.7%) and the EU (-26%).
Malaysia’s KLCI declined 5.20% on profit taking. Malaysia’s GDP growth in the final quarter of 2024 moderated to 4.8% and was below the 5.1% median forecast in a Bloomberg survey. However, Malaysia’s economic growth is expected to maintain a steady trajectory in 2025, despite external headwinds such as uncertainties in US tariff policies and global trade dynamics. Economists attributed the country’s robust domestic resilience and strategic policy initiatives as key growth drivers.
Thailand’s SET Index declined 6.12%. The University of the Thai Chamber of Commerce’s consumer confidence index rose to 57.9 in December 2024, up from 56.9 in November. This marked the third consecutive improvement and the highest level since June, supported by government economic measures and a surge in tourism. Thailand recorded 35.55 million foreign tourist arrivals in 2024, a 26.27% Year-on-Year increase, surpassing the year’s target.
Jakarta Composite Index declined 0.41%. The Bank of Indonesia unexpectedly cut its benchmark interest rate by 25 bps to 5.75% during its January 2025 meeting. Indonesia’s trade surplus narrowed to USD 2.24 billion in December 2024 from USD 3.29 billion in the same month a year earlier, falling short of market estimates for a gain of USD 3.79 billion and marking the smallest amount since February.
The Philippines PSE Index was down significantly down 10.20%. The Philippine economy expanded a lower than expected 5.2% in the fourth quarter from a year earlier, weighed down by weaker consumption and weather disruption that squeezed farm output. On a quarterly basis, the Philippines grew a seasonally adjusted 1.8% in the October-December quarter, below the 1.9% forecast in the poll. The fourth quarter growth brought full-year expansion in 2024 to 5.6%, below the government’s 6.0% to 6.5% growth target for the year.
Vietnam’s VN-Index declined 0.14%. The relatively strong economy growth guidance boosted investors’ sentiment. The Government is targeting 2025 GDP growth of at least 8.0% (double-digit growth if possible) which is higher than the National Assembly’s target of 6.5%-7.0%.
Market optimism over the election of Donald Trump as the new US President on expectations that his policies would be positive for the US sparked a recalibration of macro variables and asset allocation decision. However, as a result of concern about inflation, interest rate outlook turned less dovish and USD strengthened. Uncertainty about actual policies implementation can create large variances against expectations and bring about higher trading volatility.
So far, resilient US economic data and the prospect of US rate cuts, albeit greater uncertainty in the light of Trump’s tariff policies, as well as better than expected corporate earnings reports, have boosted investor sentiments and pushed the US stock market higher, breaching new historical highs. This is despite the US market’s already elevated valuation and continuing geo-political tensions. During his Presidential election campaign, Donald Trump had pitched that he would bring about a quick cessation to the Russia-Ukraine war should he be elected. 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 and tensions could also have major adverse impact on the markets. It remains to be seen whether the incoming Trump Administration will provide the catalyst to a cessation of the war in Ukraine, and how it would change the face of the conflict in the Middle East, and elsewhere.
We are watchful of geo-political developments as well as policy directions in the major economies, in particular US under a Trump Administration and in China. US economic, labour market and inflation data and interest rate policy responses will affect market sentiments and liquidity. Despite it being Trump’s second Presidency, the market will have to be prepared for policy changes that are unexpected and unconventional as one could expect from an untested maverick. 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. In further moves to address the economic situation, the Chinese government announced in September a slew of monetary, fiscal and policy measures to stimulate investment and consumption, enhance liquidity and restore confidence in the property and financial markets. While the move has boosted market sentiments, the longer- term effectiveness remains to be seen and will be closely watched. It may take time for the initiatives to bear fruits. Market observers believe that more stimulus measures could be expected down the road.
While interest rates have started to be eased, there remains headwind for risk assets, including the impact of the still high interest rate on business and economic activities, uncertainties in the US policies post the US Presidential election, the historically high market valuations in the US, the continuing geo-political tension in Europe, Middle East and in East Asia, and the still slower than expected economic growth in China. However, in the investment space we are in, we believe there is room for cautious optimism. After years of prolonged sell down, China equities’ depressed valuation offer potential upside, particularly following the recent rounds of significant policy change initiatives.
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.