Monthly Review July 2020
In June 2020, the MSCI Far East ex-Japan Index was up 7.99%, while the MSCI World Index gained 2.51%.
The Dow Jones Industrial Average Index (DJIA) was up 1.69% over the month, while the S&P 500 index rose 1.84% and the Nasdaq Composite Index gained 5.99%. The rising momentum in the latter half of May carried over into first half of June, fuelled by signs of progressive reopening from COVID-19 lockdowns. However, doubts about the pace and quality of the recovery from the recession raised by Fed Chairperson Jerome Powell and signs of resurgence of COVID-19 cases forced investors to reassess their positions. The US Dollar index was down by 0.97% in June.
In the Eurozone, the Stoxx Europe 600 Index gained 2.85%. European stocks rose but gains were tempered by a record rise in COVID-19 cases in the US. European Central Bank (ECB) President Christine Lagarde said the worst of the COVID-19 crisis may be over for the world, but the road ahead would not be easy. The ECB surprised investors by boosting the size of its pandemic emergency purchase program to EUR1.35 tril from EUR750 bil.
The China A-shares were up 7.68%, while the Hang Seng Index closed 6.38% higher m.o.m. China’s May macro data confirmed further economic recovery as production activity has largely normalised and demand conditions gradually restored. June’s Caixin manufacturing PMI rose 0.5 points to 51.2. Meanwhile, the Hong Kong national security law came into effect on 30th June which aims to help restore stability to society.
The South Korean market gained 3.88% in June. Economic indicators were largely mixed, with industrial production falling sharper than market expected, but retail sales and consumer sentiment showing recovery. The Healthcare and Communication Services sectors outperformed on the back of global resurgence of COVID-19.
Meanwhile in Taiwan, the index rose 6.21% m.o.m. The strong performance of the index was driven by Tech sector amid strength in Apple Supply Chain due to positive outlook in the second half following strong iPhone SE sales. The index key mover, TSMC, rallied 8.05% in the month supported by news of Qualcomm and AME filling up the 5nm capacity slack from cancellation of the supply contract with Huawei.
Singapore’s STI was up 3.15% in June. Singapore will hold an election on 10th July as Prime Minister Lee Hsien Loong seeks a renewed mandate to govern amid the coronavirus pandemic. As part of its plan for progressive re-opening of the economy, Singapore will allow several tourist attractions, including the city’s two casinos and theme parks to restart operations from 1st July.
Malaysia’s KLCI gained 1.88% m.o.m. The government announced the RM35 bil National Economic Recovery Plan (PENJANA) stimulus which consists of RM10 bil in direct fiscal injection, RM8 bil in tax incentives and the rest via measures by public sector entities. The stimulus package is positive for the auto, property, plantation, gaming and construction sectors.
In Thailand, the SET index slid 0.28%. Thailand’s government extended the country’s state of emergency for a third time to 31st July. Thailand also approved a plan worth USD720 mil to boost domestic tourism as the nation’s borders remain closed to foreign tourists amid COVID-19 pandemic. Under the plan, visitors will pay 60% of hotel accommodation bills and the government covers the rest, up to 3,000 baht per night.
The Jakarta Composite Index (‘JCI’) gained 3.19%, while Indonesia Rupiah appreciated 1.33% m.o.m. Indonesian President approved a revised budget that lifts government spending to a record USD193 bil this year as a step up effort to cushion the impact of the COVID-19 pandemic. On top of that, Indonesia’s central bank cut its benchmark interest rate by 25 bps for the first time in three months and lowered its growth forecast to 0.9% to 1.9% for the year.
In the Philippines, the PSEi soared 6.32% in June. The positive sentiment was supported by the lifting of the lockdown in Metro Manila and the transition into the more relaxed General Community Quarantine (GCQ). However, the optimism slowly faded due to the rising COVID-19 cases and the fear of another lockdown with Cebu City downgraded to lockdown status once more. The central bank cut overnight rates by 50 bps to 2.25% with the objective of boosting the economy.
Vietnam’s VN-Index tumbled 4.55% in June. Vietnam’s parliament unanimously approved a free trade agreement with the European Union that will scrap almost all tariffs on goods traded between the bloc and Vietnam. The agreement is expected to go into effect as early as July after all governments approve it.
Crude oil price (WTI) continued to recover, gaining 10.65% to USD39.27 per barrel in June, while Brent crude gained 16.47% to USD41.15 per barrel. OPEC+ agreed to a one month extension of its record output cuts and adopted more stringent methods to ensure members do not break their production pledges. Crude palm oil (CPO) prices made a slight gain of 0.25% to RM2,379/MT in June.
The global stock markets continued to recover from the sharp falls seen in late February and in March, underpinned by unprecedented fiscal and monetary measures undertaken by governments and central banking authorities all over the world to mitigate the financial and economic impact of the COVID-19 pandemic. Steps taken by various countries to reopen their economies as well as optimism about on-going efforts at developing potential treatments and vaccines for the coronavirus have boosted investor confidence, sparking market rallies, while resurgence of COVID-19 cases in various countries and concerns about potential second wave have led to market sell down. We believe that actions taken by the governments in controlling the spread of the disease and in helping businesses mitigate the financial impact, as well as the eventual development of effective treatment and/or vaccines, will hasten the markets’ full recovery when it is clear that the pandemic is being brought under control.
However, one can expect that this can be more prolong than was the case with SARS, given the uncertain nature of this novel corona virus and the fact that different country is going through a different epidemic control cycle.
Resurgence of COVID-19 cases in countries and the risk of a second wave of outbreak may have implications on the speed at which businesses and economic activities will re-open. As a result, the economic impact of the pandemic is expected to be felt for some time. At the same time, rising economic and political tensions between the US and China may bring further market uncertainties. The resulting market volatilities may provide opportunities to increase exposure in value stocks that are sold down well below their intrinsic value. Hence, we will be watchful for valuations that have become compelling, especially for quality stocks that have strong foreseeable earnings growth with low gearing. At the same time, as we never fully invest at all times, we may seek to trim our equity exposure on stocks which have rallied beyond their fundamentals.