Market Review June 2024
Globally, risk assets advanced in May 2024. The Far East ex-Japan index, however, underperformed compared to the developed markets. The MSCI Far East ex-Japan Index increased by 1.48%, whereas the MSCI World Index rose by 4.23%. Within the Far East ex-Japan markets, Taiwan and Hong Kong shares performed strongly, while ASEAN equities lagged, returning -0.85%. Notably, Taiwan shares (+3.81%) and Vietnam shares (+4.32%) were the top performers. Conversely, the Philippines (-3.99%), Indonesia (-3.64%), and Korea (-2.06%) were the laggards. Regional currencies showed mixed performance against the USD. The best-performing currencies were the Malaysian Ringgit (+1.43%), Singapore Dollar (+1.07%), and Thai Baht (+0.97%). In contrast, the weaker currencies were the Philippine Peso (-1.29%) and Vietnamese Dong (-0.45%).
Major US indices recovered from the declines in April, driven by a resilient economic outlook. Data released in May indicated some signs of moderation, with capital spending and home sales trending sideways. Corporate earnings announcements were generally encouraging. The Dow Jones Industrial Average (DJIA), S&P 500, and Nasdaq Composite returned +2.30%, +4.80%, and +6.88% respectively. US inflation exceeded expectations, reaching 3.4% year-on-year in April. The US composite Purchasing Managers’ Index (PMI) rose to 54.5 in April from 51.3 in March, suggesting continued expansion in activity.
The Stoxx Europe 600 Index gained 2.63%, tracking the US markets. In the eurozone, PMI data released during the month confirmed that economic activity is improving. The services sector continued to act as the key pillar of strength, although there were signs of recovery in manufacturing as well. First-quarter GDP was confirmed at 0.3% quarter-on-quarter, with corporate profits surprising on the upside.
Hong Kong and H-share indices continued to gain momentum from foreign fund inflows. The Hang Seng Index and Hang Seng China Enterprises Index gained 1.78% and 1.89% respectively, while China’s A-shares index declined by 0.68%. China’s exports rose by 1.5% in dollar terms from a year ago, slightly above expectations and providing a boost for the economy. Ongoing policies to revive the property market also helped improve investor sentiment. Hangzhou, the capital of Zhejiang province, announced it will remove eight-year-old restrictions on residential property purchases and will no longer review the qualifications of homebuyers. Xi’an, the capital of Shaanxi province, announced similar measures. There are also reports that the Chinese government is considering allowing local governments to purchase unsold homes from financially distressed developers.
South Korea’s KOSPI Index declined by 2.06%. Banks’ lending rates fell amid lower expectations for policy rate cuts later this year. The weighted average rate for fresh bank loans stood at an annualized 4.77% in April, down 0.08 percentage points compared to the previous month, according to the Bank of Korea (BOK). The lending rate for large corporations slipped by 0.04 percentage points to 4.97%, while the rate for small companies decreased by 0.12 percentage points to 4.81%.
Taiwan’s TWSE Index gained 3.18%, driven by technology shares, specifically the semiconductor sector. Taiwan’s April export orders were up 10.8% year-on-year, beating the consensus of 6.1% year-on-year growth. Taiwan export orders totalled US$47.1 billion in April, down 0.1% month-on-month but up 5.7% quarter-on-quarter when seasonally adjusted.
Singapore’s Straits Times Index (STI) continued to recover, gaining 1.33%, supported by banking counters. The S&P Global Singapore PMI decreased to 52.6 in April 2024 from 55.7 in the previous month. This latest reading marked the 14th consecutive month of expansion, though at the softest pace since last July, as output and new orders grew at the slowest rate in nine months.
Malaysia’s KLCI gained 1.31% on strong domestic flows. Investor sentiment remained robust due to an improving economic growth outlook. The second quarter GDP is forecasted to rise by 1.3% quarter-on-quarter, up from a previous survey’s projection of a 0.9% increase. The third quarter GDP is expected to increase by 1.3% quarter-on-quarter, versus an earlier forecast of a 1% rise. The consumer price index (CPI) in April posted a moderate increase of 1.8% year-on-year, maintaining the rate recorded in March and February, according to the Department of Statistics Malaysia (DOSM).
Thailand’s SET Index continued to weaken, declining by 1.63% due to political uncertainty. Thailand’s GDP contracted by 0.6% in the first quarter of FY2024. In February, the government revised its GDP forecast for the year to 2.2%-3.2%, down from the previous projection of 2.7%-3.7%. The University of the Thai Chamber of Commerce’s consumer confidence index also fell to 62.1 in April 2024 from 63.0 in March, marking the second consecutive month of decline and the lowest level since last December.
The Jakarta Composite Index declined by 3.64% due to foreign fund outflows. Indonesia’s economy advanced by 5.11% year-on-year in the first quarter of FY2024, compared with market estimates of 5.0%, following a 5.04% rise in the fourth quarter of 2023. This marked the fastest yearly economic growth since the second quarter of 2023, driven by robust household consumption during most of the Ramadan fasting month and Eid-al-Fitr preparations. Government spending also picked up strongly (+19.90%), boosted by expenditure related to the February elections.
The Philippines PSE Index declined by 3.99% despite strong economic growth. Tensions between the country and China in the South China Sea region affected investor sentiment. The Philippines GDP expanded by 5.7% year-on-year in the first quarter of 2024, up from a downwardly revised 5.50% growth in the previous period but below market forecasts of 5.90%. This marked a year-long sequence of expansion, boosted by a rebound in government spending (1.7% vs -1.0% in Q4). Net trade also contributed positively to GDP growth, with exports advancing by 7.5% (vs -2.5%), while imports rose at a softer rate of 2.30% (vs 2.0%).
After a 5.81% fall in April, Vietnam’s VN-Index recovered strongly in May, gaining 4.32% due to bargain hunting supported by domestic investors. Economic data remained strong, with May exports growing by 15.8% year-on-year. Industrial production increased by 6.8%, with the manufacturing sector rising by 7.3% year-on-year. Total retail sales of goods and services were also robust, increasing by 9.5% year-on-year for the month.
After many months of rate hikes by the US Federal Reserve since 2022 to combat inflation, the recent easing of inflation rates in the US has raised market expectations that rates may start to fall. Fed officials have forecasted several rate cuts at the beginning of 2024, although whether this will materialize depends on the economic data at the time. The market had been hopeful for rate cuts starting as early as March, but this prospect has been pushed back to the second half of 2024. However, recent inflation data has further dampened expectations regarding the timing and number of rate cuts.
So far, resilient US economic data, strong corporate results from major tech companies, investments in AI-benefiting firms, and the prospect of US rate cuts have boosted investor sentiment, pushing the US stock market to new historical records. However, the ‘higher-for-longer’ narrative on US interest rates is regaining prominence, with some observers pointing to downside risks to economic activity.
US economic and inflation data, along with expectations and decisions on Fed rates, will continue to significantly influence investor decisions on risk assets in the US and globally. Investors are pricing in a lower interest rate environment as early as the second half of 2024. This, coupled with better-than-expected earnings reports and a more resilient economy, has maintained buoyant investment sentiment despite the US market’s elevated valuations and ongoing geopolitical tensions.
We are watchful of geopolitical developments and policy directions in major economies, particularly the US and China. The continuing Israel-Hamas conflict and the risk of it spreading in the Middle East add to the uncertainties. US economic and inflation data and interest rate policy responses will affect market sentiments and liquidity. As the US Presidential election in November approaches, increasing attention will focus on the potential election outcome and its impact on US policies. 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 would positively impact China’s economy and risk assets. The Chinese government has announced various measures to support the economy, particularly the property sector, though it may take time for these initiatives to bear fruit.
While we are cautiously optimistic, headwinds for risk assets remain, including the continuation of high interest rates and their impact on business and economic activities, slower-than-expected economic growth in China, and relatively high valuations in the US. Continuing geopolitical tensions in Europe and East Asia, along with the new conflict in the Middle East, will keep risk premiums elevated at times and result in market volatility. We will be watchful of these factors.
The prolonged sell-down of Chinese equities and their depressed valuations may offer potential upside with the implementation of expansionary Chinese policies to support economic activities.
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.