Monthly Review February 2022
The best performing regional indices were Hang Seng China Affiliate CRP (+5.68%), Singapore (+4.03%) and Philippines (+3.36%), while the laggards were Korea (-10.56%), Shanghai SE Composite (-7.65%) and CSI 300 (-7.62%). Most currencies in the region strengthened against the USD. The best performing currencies were Korean Won (+1.36%) and Indonesia Rupiah (+0.92 %).
For the month of January 2022, the MSCI Far East ex-Japan Index declined 3.41%, less than the MSCI World Index’s 5.34% decline.
Major indices in the US were down: Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq Composite declined 3.32%, 5.26% and 8.98% respectively. Risk assets led the selling. There was marked increase in market uncertainty and volatility. The potential rate hike in March prompted by high inflation and a strong labour market led the Fed Chairman to become more hawkish. US consumer inflation climbed to 7% year-on-year in December, which is the highest level since 1982. Inflationary pressure was broad based across goods and services. Producer prices rose 9.7% during the same period, close to the previous months’ high. Producers continued to face a variety of supply constraints ranging from input materials, transportation and labour. The escalating tensions between the US and Russia over Ukraine increased risk premium and trading volatility.
The Stoxx Europe 600 Index declined 3.88%. In Europe, economic activities data were surprisingly resilient against the backdrop of rising Covid infections across the continent. January’s manufacturing PMI rose to 58.7, indicating a very sanguine sentiment in the sector. The new order sub-index improved from 55.0 in the previous month to 56.9, indicating further growth potential.
Hong Kong and H shares indices rebounded, with Hang Seng Index and Hang Seng China Enterprises Index gaining 1.73% and 1.38% respectively. China’s A shares index declined 7.62%. The Chinese Government’s measures to provide liquidity to the system to stabilize economic activities improved risk asset performance. China is reported to be drafting new rules that will let property developer access pre-sale funds held in escrow accounts as part of an effort to ease the sector’s cash crunch. The cash held in escrow is currently controlled by municipal governments with no central oversight.
South Korea’s KOSPI Index declined 10.56% due to sharp decline in the Internet sector performance. South Korea consumer sentiment improved in January, despite a growing concern regarding the omicron variant of COVID-19. The Consumer Sentiment Index for January hit 104.4 point, up from 103.8 in December, according to Bank of Korea. A reading above 100 indicates optimists outnumber pessimists. The expected inflation rate for the next 12 months was 2.6%, reported the central bank.
Taiwan’s TWSE Index declined 2.99%, tracking the fall in US tech stocks. December export orders continued to increase at 12.1% yoy, faster than expectations for growth of 7.3%, to NT$67.9bn for an all-time high for the month and above the Ministry of Economic Affair forecast of US$60.5bn-NT$62bn. Export orders grew for a 22nd straight month. Taiwan economy is well supported by export growth on strong semiconductor cycle.
Singapore’s STI gained 4.03%. Singapore’s seasonally adjusted unemployment rate fell to 2.4% in 4Q2021 from 2.6% in 3Q2021. This was the lowest jobless rate since 4Q2019, as the economy recovered further from COVID-19 disruptions. This will bode well for domestic consumption.
Malaysia’s KLCI declined 3.53%. Manufacturing PMI lowered in January to 50.5 compared to 52.8 in December. However, strong export remains a good support for the economy. Malaysia’s exports in December 2021 rose 29.2% to 123.85 billion ringgit from a year earlier on higher electrical and electronic (E&E) shipment. Electrical and electronics goods, which account for more than one-third of Malaysia’s total exports, advanced 36.1% in December from a year earlier, while petroleum product shipments gained 25.6%, according to the Ministry of International Trade and Industry (MITI).
Thailand’s SET Index was marginally down by 0.53%. The country’s Transport Minister announced a plan to invest in various megaprojects worth an estimated 1.49 trillion Baht to improve Thailand’s land, sea and air connectivity. Expansionary fiscal policy will provide stability to economic growth amid weak tourism industry outlook due to Covid crisis.
The Jakarta Composite Index eked out a minor gain of 0.75%. Indonesia’s Manufacturing PMI remained healthy at 53.7 in January, compared to 53.5 in the prior month. Bank Indonesia (BI) will increase the reserve requirement ratio (RRR) gradually in 2022. This move will mitigate future inflationary pressure and exchange rate volatility. The RRR for commercial banks will be raised by 150 bps to 5.0% in Mar-2022, followed by another 100 bps in Jun-2022, and the final 50-bps increase to 6.5% in Sep-2022, totaling a 300-bps increase.
The Philippines PSE Index gained 3.36%. January manufacturing PMI declined to 50.0 from 51.8 in the previous month. The Philippines logged another record high in daily new Covid cases exceeding 28,000, the highest tally of daily cases recorded since the pandemic began while positivity rate has gone up to 44%, due to the spread of Omicron variant during the year-end holidays. This has affected economic activities. The economy will lose P3 billion a week in Gross Value Added due to the shift to the more restrictive Alert Level 3 in Metro Manila and nearby regions covering Bulacan, Cavite, Laguna, and Rizal, according to the Development Budget Coordination Committee (DBCC).
Vietnam’s VN-Index edged 1.29% lower. Vietnam’s industrial production rose by 2.4% YoY in January, following an 8.7% gain a month earlier. This was the third straight month of increase, but it was also the softest pace of growth amid growing spread of the Omicron variant of the coronavirus in the community. Output moderated for both manufacturing (2.8% vs 10.9% in December) and electricity, gas supply (5.1% vs 9.1%), amid a further drop in mining production (-4.6% vs -7.1%).
Given the corrections in recent period, we are becoming more optimistic on risk assets on low valuation, especially in Asia ex. Japan, driven by expansionary Chinese policies to support economic activities. We are watchful of policy directions in the major economies, in particular US and China, which will have major implications on the economies in general as well as on specific sectors. US policy responses will face headwinds going into 2022, in our opinion. Tapering and rate hike in 2022 will affect liquidity and increase cost of borrowing in the system. In Asia, the focus is on China’s policy responses to the liquidity crunch in the property sector. Chinese authority has acted decisively to stabilize the economy with liquidity injection.
There remains headwind for risk assets, including rising bond yields and interest rate hikes to contain inflation and relatively high commodity prices, as well as relatively high valuations in the developed markets. The geo-political issues between China and US, and the new tension between the US and Russia over Ukraine will keep risk premium elevated at times and result in markets volatility.
We are adding to risk assets as valuation become more attractive. 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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