Monthly Review July 2021

Dear Value Investors,

For the month, the MSCI Far East ex-Japan Index declined 0.36%, lagging the MSCI World Index which was up 1.40%.

The Dow Jones Industrial Average Index (DJIA) declined 0.08% while the S&P 500 index was up 2.22% and the Nasdaq Composite Index gained by 5.49%. The broader risk asset continued to gain strength on optimism over government expansionary policies. The technology sector recovered strongly. US consumer confidence jumped to its highest level in one and a half years amid growing labor market optimism in a reopening economy.

The Stoxx Europe 600 Index up by 1.36%. Although the vaccination rates picked up, the spread of the highly infectious Delta variant of Covid-19 tampered market performance towards the end of the month. On the economic front, the private sector PMIs continued to impress in June, with service and manufacturing sector activity rising and holding steady.

Hong Kong and China indexes down with CSI-300 Index, Hang Seng Enterprise Index and Hang Seng Index declining 2.02, 2.07% and 1.11% respectively. China’s economic activities weakened with latest composite PMI at 52.9 in June compare to 54.2 in May. The manufacturing index came in at 50.9 while non-manufacturing index was 53.5.

South Korea’s KOSPI Index recorded a gain of 2.90%. Korea posted a stronger-than-expected recovery from the pandemic, with vaccinations gathering pace and exports posting decades-high gains. Despite the potential monetary tightening stance on economic strength, combined with rallying asset prices driven by debt, investors continue to be optimistic over risk asset on positive earnings outlook.

The TWSE index gained 4.03%. The monetary authority has raised its 2021 GDP forecast from 4.53% to 5.08%, with 2H21 to underperform 1H21, thanks to export growth sustained by recovering global economy and firm-paced rise in private investment. This boasted investors ‘confidence over economic growth outlook.

Singapore’s STI declined 1.07% as resurgent of Covid-19 cases hurt investors’ sentiment. Singapore latest PMI figure dropped to 50.1 in June, from 54.4 in the previous month. Private home prices in Singapore increased by 0.9% QoQ in the 2Q2021, after a 3.3% growth in the previous period, a preliminary estimate showed. This was the fifth straight quarter of increase in private home prices, as the government reopens the economy following a Covid-19 crisis

Malaysia’s KLCI declined 3.22%. The high Covid-19 cases in Malaysia and the high ICU occupancy has prompted the government to implement another lockdown in the country, and has becoming stricter in Klang Valley area. The fresh measure of lockdown would deteriorate the economy and household spending further. Malaysia’s Purchasing Managers’ Index fell to 39.9 in June from 51.3 in May. Manufacturers reported a renewed downturn in June as the recent rise in Covid-19 infections and associated containment measures once again dampened demand, production and disrupted supply chains.

Thailand’s SET index declined 0.36%. The Thailand Manufacturing PMI rose to 49.5 in June from 47.8 in the prior month. However, concerns over the government’s ability to control the recent wave of local Covid-19 infections dampened investors’ risk appetite. Domestic demand deteriorated further due to the Delta Variant, which had triggered stricter containment measures. Private consumption came in +0.5% YoY despite the low base effect while public spending unsurprisingly picked up by 4.2%, reflecting government’s efforts to shore up the economy

The Jakarta Composite Index gained 0.64%. Indonesia Manufacturing PMI corrected to 53.5 in June from record high of 55.3 in May. With the highest number of Covid-19 cases and deaths in South East Asia, Indonesia is currently grappling with a surge of infections following Lebaran holiday where people returned to their hometowns and throngs of people crowded tourist spots. This has led the government to impose another round of strict movement order, which could further impact the economy.

Philippines’s PSE index gained 4.12%. Philippines’ May manufacturing PMI improved to 50.8 from 49.9 in the previous month which boasted investors’ sentiment. Economy was marginally buoyant underpinned by net external demand as domestic demand remained tepid. However, manufacturing output, new orders and employment continued to decline albeit at a slower pace.

Vietnam’s VN-Index gained 6.06%. Vietnam Manufacturing PMI dropped to 44.1 in June from 53.1 in May. Despite a weak PMI figure, the market continued to rise on rising capital foreign inflow. The economy is expected to expand at a high rate. For 2Q21, it is expected to grow 7.3% year over year.

We remain cautiously optimistic on risk assets as earnings outlook is expected to be positive in near term supported by strong economic growth prospect across the global economy. USA policies responses are expected to be expansionary at least for 2021, in our opinion. In Asia, the resurgent of Covid-19 cases across some countries will impact on domestic economic activities mitigated by consumer confidence as vaccination drive by the government. The latest PMI figure from China suggest economic activities is still healthy. However, we think that the risk asset is trading at elevated level in near term.

Headwind for risk assets include rising bond yields and continued inflation concerns from loose monetary policies and high commodity prices. 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 increasing our cash level. We continue to apply the 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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