Monthly Review April 2021

Dear Value Investors,

After the reflation narrative captured the global market’s attention in February 2021, March saw the Dow Jones Industrial Index (DJIA) and S&P 500 Index extending their gains, while the Far East Ex-Japan markets witnessed a rotation of interest.  . The best performing markets in the region in local currency terms were Singapore’s Straits Times Index (+7.33%), Stock Exchange of Thailand (SET) Index (+6.04%), and Taiwan’s TAIEX Index (+2.99%). The worst performing markets were the CSI 300 Index (-5.40%), the Philippine’s PSEi Index (-5.18%) and Jakarta’s JCI Index (-4.11%). The US Dollar’s strength in March led to most regional currencies underperforming, with the best performing currencies against the USD being the Indian rupee (+1.03%), the Philippine peso (+0.47%), and the Vietnam dong (-0.20%); while the Japanese yen (-3.76%) was the worst performing currency.

In March 2021, the MSCI Far East ex-Japan Index gained -3.22%, while the MSCI World Index was up +3.11%.

The Dow Jones Industrial Average Index (DJIA) gained +6.62% in March 2021, and the S&P 500 index was up +4.24% while the Nasdaq Composite Index made a small +0.41% gain. The S&P 500 index hit the psychologically important 4,000 mark on April Fool’s Day, causing market chatter of possible economic overheating by US policymakers. After passing the USD1.9 tril American Rescue Plan stimulus package, the White House was reportedly preparing a second USD3 tril stimulus plan to help the US economy achieve maximum employment.

The Stoxx Europe 600 Index was up +6.08% over the month. Trade figures from UK’s Office for National Statistics shrank in January after the end of the Brexit transition period at the beginning of the year, with export of goods to the EU falling by 40.7% m.o.m and imports by 28.8% compared with December 2020. Global pharmaceutical company AstraZeneca was hit with a wave of criticism following the appearance of cases of unusual blood clots in some people vaccinated with AstraZeneca’s Covid-19 vaccine, giving rise to question about the possible links between use of its vaccine and blood clots in its users.

The CSI-300 Index fell -5.40%, while the Hang Seng Index was down -2.08% as well. China was hit with a fresh wave of sanctions by the Western world over accusations of human rights abuses against the Muslim Uighur minority group in Xinjiang, with China swiftly responding with sanctions of its own against European officials and entities. China’s central bank, the PBOC, announced in March a newly established joint venture with SWIFT and four Chinese institutions to make cross-border transactions more stable and secure, and to allow better monitoring and analysis of cross border messaging information to help control risk to the financial system.

South Korea’s KOSPI Index recorded a gain of +1.61% for the month of March 2021. With the US-China tensions weighing on the investment narrative and with the USA busily building and consolidating its alliances, South Korea’s diplomatic priority of maintaining the North-South Korean equilibrium kept it from demonstrating firm loyalty towards one side or the other.

The TWSE index gained +2.99% in March 2021. The US-China semiconductor war continued to draw attention to the region, with TSMC’s revealing stunning CAPEX plans of USD100 bil over the next 3 years to increase capacity to support the manufacturing and R&D of advanced semiconductor technologies – likely in response to Intel’s recent announcement to significantly expand into the semiconductor manufacturing space.

Singapore’s STI gained +7.33% in March 2021, the best performer for the region for the month. The strong performance, driven by rotation into cyclicals, could be attributed to an improving outlook recorded in industrial survey figures, with economists posting strong economic forecasts for the island nation.

Malaysia’s KLCI was down -0.27% in March 2021. The government unveiled a new economic stimulus package worth MYR20 bil in mid-March, the sixth such package since the start of the COVID-19 pandemic. Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 1.75%, citing a steady outlook albeit subject to downside risks.

Thailand’s SET index rose by +6.04%. The government said that it expects investments to triple to at least USD10 bil in the country’s industrial east this year, as investment projects previously held back by the coronavirus outbreak resume as the pandemic eases. The tourist-led economy also said it would reopen Phuket for vaccinated foreign tourists without quarantine, driving investment sentiment higher.

The Jakarta Composite Index (‘JCI’) fell -4.11%, amidst appearance of a new variant of the Corona virus in the country. Jakarta laid down ground rules for its new law on job creation, widely seen as an ambitious regulatory reform to lure foreign investments and stimulate the pandemic-hit economy.

In the Philippines, the PSEi fell by -5.18% for the month after posting one of its worst GDP growth figures last year. A recent spike in daily Covid-19 cases in Manila led government officials to implement fresh lockdown measures, affecting more than 24 million people. More than 200 Chinese vessels were seen moored within the Philippines’ exclusive economic zone, raising the political temperature in the Philippines, prompting political analysts to wonder if it was an attempt to test the US’s resolve to intervene in its allies’ territorial disputes.

Vietnam’s VN-Index was up +1.97% m.o.m, with officials bracing for possible inflation as a result of resurgence of demand.  Vietnam’s economy grew 4.5% in the first quarter, but the government expects the whole year GDP to grow 6.7% while economists surveyed were expecting 5.7%.  Economic statistic for the first three months of the year were optimistic, with disbursed FDI up +6.5% or USD4.1 bil from a year earlier, exports rising +19.2% and bank lending up +1.47% y.o.y.

Commodities gave up some of their gains in March after the previous month’s price spike, as the demand-supply equilibrium normalized following a restoration of crude supply to affected areas. Crude oil prices (WTI) fell -3.80% to USD59.16 per barrel and Brent crude fell -3.92% to USD63.54 per barrel, even as OPEC said they would mostly roll over production cuts through the month of April. CPO prices gained slightly for the month with prices rising +1.88% to RM 4,061, touching an all-time high for the country’s palm oil history at RM 4,247.50 per tonne in mid-March.

With the US Congress’ passing of the USD1.9 tril American Rescue Plan economic stimulus package and the better than expected roll out of Covid-19 vaccinations in the US, it appears that markets are responding favourably to the prospect of a gradual global recovery throughout 2021. Market chatter barely registers pandemic news anymore, with investor sentiment, business sentiment and consumer sentiment all returning to pre-covid optimistic highs. In our home base of Malaysia, as the number of new Covid-19 cases plateaued, the government reinstated back-to-school policies and promised that no more broad lockdowns would take place. Domestic tourism and property stocks – the last bastion of the bull market narrative in Malaysia – roared back to life amidst a disciplining of technology stocks.

However, such optimism comes with the potential for significant volatility in economic fundamentals going forward – such as unhealthily high government debt levels; the introduction of CBDC by both the No. 2 (China) and No. 3 (Japan) economy; the prospect of negative interest rates across a broad swath of the world; and more. The amount of uncertainty that can wreck havoc on market prices is increasing, with multiple black swan events capturing the imagination of keen economic observers. The rapid YTD deterioration of both the technology sector and China in the investment narrative – since just 3 short months ago – demonstrates how quickly investment sentiment can turn.

In light of such uncertainty, we stress our previously stated strategy of focusing on identifying fundamentally healthy companies, rather than picking binary directional plays on which way markets will swing. Seeking low valuations, low leverage, high growth, robust management and a strong track record in our investee companies, and an adherence to our investment philosophy of “Never Fully Invest at All Times” has served us well over the years. We are also in the midst of developing a robust ESG investment framework to meet the increasingly socially-aware demands of investors, as well as other stakeholders.

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