Monthly Review December 2021
As for November, the best performing regional indexes were Taiwan (+2.59%), Vietnam (+2.37%) and Philippine (+2.07%), while the laggards were Hang Seng Index (-7.49 %), Hang Seng China Enterprise Index (-6.62%) and Straits Times Index (-4.91%). Most currencies in the region weakened against the USD. The best performing currencies were Chinese RMB (+0.65 %) and Taiwan NT (+0.38 %).
For the month, the MSCI Far East ex-Japan Index declined 4.06%, lagging the MSCI World Index which was down 2.30%.
Major indexes in the US were mixed: Dow Jones Industrial Average (DJIA) and S&P 500 declined 3.73% and 0.83% respectively while Nasdaq Composite gained 0.25%. The US Consumer Price Index (CPI) jumped to 6.2% y.o.y in October, its highest reading in 31 years. Retail sales grew 1.7% in October. Labor market remained resilient with non-farm payrolls rising by 531,000 in October, well above the consensus estimates of a 450,000 gain, while in November only 199,000 Americans filed for initial unemployment benefits, the lowest number since 1969. Speaking before a Senate Committee, Jay Powell, who was reappointed for a four-year term as Federal Reserve Chairman, said that the taper of bond purchases could end a few months earlier than the end of June 2022. However, the uncertainty around Omicron could further delay the tapering. Finally, Biden signed a long awaited $550 billion bipartisan infrastructure bill to fund the upgrade of America’s roads, bridges and railways and deploy electric vehicle charging stations across the country.
The Stoxx Europe 600 Index declined 4.56%. In Europe, economic data were mixed in November. On the positive side, the Euro area PMI flash survey rebounded to 55.8 (+1.6) after three consecutive months of decline. The French Insee Business survey increased while the German IFO business climate index dropped. This divergence can at least partially be explained by the fourth Covid-19 wave, which has so far been more acute in Germany than in France. Several countries, have already reintroduced new mobility constraints to curb the spread of the virus. These measures, together with inflation reaching 4.1% year-over-year in October, have weighed on consumer sentiment.
Hong Kong and China indices corrected, with CSI-300 Index, Hang Seng China Enterprises Index and Hang Seng Index declining 1.56%, 6.62% and 7.49% respectively. China’s economic activities remained healthy. The latest composite PMI for November came in at 52.2 compared to 50.8 in October. The manufacturing index came in at 50.1, while non-manufacturing index was 52.3. Equity indices retraced on concerns over liquidity issues in the property sector and its contagious effect on the rest of the economy. In the near term, the economic situations are facing strong headwinds from rising cost pressure as PPI hit an all-time high since July 1995, rising 13.5% y.o.y in October.
South Korea’s KOSPI Index was down 4.43%. Bank of Korea increased its key interest rate by another 25bps in November, ending its below 1% era for 1.8 years. Monetary policy is expected to tighten further as expectation of another 25 bps increase for the 1Q22 period looms.
Taiwan’s TWSE index gained 2.59%. October export orders came in at US$59.1bn, down 6.0% mom, but up 14.6% y.o.y. Growth slowed significantly and fell far short of Bloomberg consensus median growth of 22.9%. January-October export orders remained healthy, totalled US$541bn, up 30.2% y.o.y.
Singapore’s STI declined 4.91%. Singapore’s economy expanded 7.1% y.o.y in 3Q21, compared with market consensus of a 6.5% growth and slowing from an upwardly revised 15.2% jump in 2Q. Still, this was the third straight quarter of growth, amid a sustained economic recovery in the wake of COVID-19 disruptions. Singapore’s annual inflation rate climbed to 3.2% in October from 2.5% in September, above market forecasts of 2.8%. This was the highest figure since March 2013, boosted by a faster recovery in consumption as the economy reopens further.
Malaysia’s KLCI dropped 3.09%. Manufacturing PMI remained stable in November at 52.3 compared to 52.2 in October. Malaysia’s export surpassed RM 1 trillion in first 10 months, an increase of 25% y.o.y which exceeded the overall exports in 2020.
Thailand’s SET index dropped 3.37%. Thailand’s Manufacturing PMI declined marginally to 50.6 in November from 50.9 in the prior month. Third quarter GDP growth fell on the back of tougher mobility restrictions in July and August amid a severe third Covid wave. GDP contracted by -0.3% from a year ago (vs. +7.6% in 2Q). On a quarter-on-quarter seasonally adjusted basis, GDP fell by -1.1% (vs. +0.1% in 2Q) above market expectations for a -1.3% contraction.
The Jakarta Composite Index declined 0.87%. Indonesia’s Manufacturing PMI remained healthy at 53.9 in November compared to 57.2 in October. Bank of Indonesia (BI) expects foreign capital inflow to slow on rising uncertainty in the global economy due to monetary policy tightening in developed economies. BI predicts that digital transaction values could spike further in 2022. October’s fiscal deficit stood at IDR548.9tn (-3.3% of GDP), higher than the prior month’s IDR452tn (-2.74% of GDP). This was driven by increased government spending, which grew by +0.8% to IDR2,058.9tn in October.
The Philippines PSE index gained 2.07%. October manufacturing PMI improved to 51.7 from 51.0 in the previous month. Infrastructure spending in September was up by 25% y.o.y (+0.4% mom) to P71.2 billion as the government ramped up construction activities before the election ban on public works in March next year. In 3Q21, infrastructure and capital outlays spending increased by 39.9% y.o.y to P214.9 billion, pushing 9M21 growth higher by 42.1% y.o.y to P641.5 billion. The government set a P1.02-trillion infrastructure budget for this year, which represents around 5.1% of the gross domestic product (GDP).
Vietnam’s VN-Index gained 2.37%. Manufacturing PMI remained stable at 52.2 in November compared to 52.1 in October on easing of Covid restrictions. Foreign direct investments (FDI) fell 4.2% from a year earlier to USD 17.1 billion in the January to November 2021 period. Meantime, FDI pledges, which indicate the size of future FDI disbursements, edged up 0.1% in the year to USD 26.46 billion. The manufacturing and processing sector is set to receive the largest amount of investments (53% of total pledges) followed by gas, water and electricity distribution (21.6%). Singapore was the top source of FDI pledges, followed by South Korea and Japan.
We remain cautiously optimistic on risk assets on positive earnings in the near term supported by resilient economic growth prospect across the globe. US policy responses are expected to remain expansionary at least for 2021, in our opinion. However, there is increasing probability of tapering and rate hike in 2022. In Asia, the focus is on China’s policy responses to the liquidity crunch in the property sector. It is reported that mortgage rates in selective cities have started to moderate, and certain local banks have started to accelerate their mortgage approvals and grant of payments. Policies risk on other sectors in China continues to keep investors on the side line.
Headwind for risk assets include rising bond yields and continuing inflation concerns from loose monetary policies and relatively high commodity prices, as well as relatively high global market valuations. The geo-political issues between China and US will keep risk premium elevated at times and result in markets volatility.
We continue to take profit on selected investment on high valuation and maintaining relatively high cash level. 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 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.
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.
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