Monthly Review October 2020
Dear Valued Investors,
In September 2020, the MSCI Far East ex-Japan Index was down 1.90%, while the MSCI World Index slid 3.59%.
The Dow Jones Industrial Average Index (DJIA) slid 2.28% over the month, while the S&P 500 index declined 3.92% and the Nasdaq Composite Index dropped 5.16%. Wall Street lost ground as COVID-19 infection surged and tension with China heightened. Rising US COVID-19 infections, which topped 7 million, has threatened economic recovery. Federal Reserve Chairman Jerome Powell reiterated his view that fiscal support is needed from Congress to support the myriad central bank programs that are both propping-up the U.S stock market and providing near-term, yet fading, support for the broader economy. However, while the Democrat and Republican law makers are keen to strike a deal on a second stimulus package, there is as yet no bipartisan agreement on a bill. The US Dollar index gained 1.89% in September.
In the Eurozone, the Stoxx Europe 600 Index was down 1.48%. European stocks closed lower as allegations surrounding banks’ involvement in illicit money dealings and rising COVID-19 infections weighed on market sentiment. Several global lenders were identified in media reports as having allegedly moved suspicious funds over a period of nearly two decades. The reports cited confidential suspicious activity reports filed by banks to the US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).
China A-shares slipped 4.75%, while the Hang Seng Index tumbled 6.82%. Both China and Hong Kong markets were dragged down by elevated US-China trade and geo-political tension, and further compounded by the US announcement of export control over supply of parts and equipment made using US technology to SMIC.
The South Korean market recorded a marginal gain of 0.07% in September. While the index rallied in the first 2 weeks of September, the rally cooled down on profit taking amidst the uncertainties over the US election in November.
In Taiwan, the index eased 0.60% lower. Investors are taking a pause to consider the near term prospects of Taiwan stocks after the strong rally since March amid rising tensions with China. TSMC and other tech stocks came under pressure after US sanctions banning companies that use American semiconductor technology from selling chips to Huawei.
Singapore’s STI dropped 2.60% in September. The Singapore market index continues to be weighed down by the depressed oil & gas, telecommunication, tourist and hospitality sectors. Moves are being taken progressively to lift border restrictions for visitors, starting with New Zealand and Brunei, and later extended to Australia and Vietnam from 8th October.
Malaysia’s KLCI fell 1.34% mainly due to profit taking on gloves makers, as well as heightened political risk and rising COVID-19 cases. Opposition leader Datuk Seri Anwar Ibrahim surprised the market when he claimed that he had a strong and formidable majority to form a new federal government. Malaysia hit record high of new COVID-19 cases following multiple of new clusters were detected in Sabah, Kedah and Selangor.
In Thailand, the SET index tumbled 5.62%. Thailand’s cabinet approved several stimulus measures worth THB70 bil to boost consumption and jobs to counter the economic downturn from the pandemic. The ministerial meeting also passed a resolution to add three additional holidays this year to encourage domestic travel.
The Jakarta Composite Index (‘JCI’) plummeted 7.03%. The unexpected decision to put Indonesia’s capital back into a tougher lockdown has surprised investors as well as threatening to prolong the economic recovery. Starting from 14 September, Jakarta required non-essential industries to have employees work from home, limited the use of public transportation and shut entertainment sits and places of worship.
In the Philippines, the PSEi slipped 0.34% in September. During the month, President Duterte signed into law the PHP140 bil economic stimulus package under Bayanihan II with a PHP25 bil standby fund. Bayanihan II provides financial assistance in many areas, including support for medical frontliners, 60-day deferment of loan repayment, unemployed and displaced workers, tourism and education.
Vietnam’s VN-Index gained 2.67% m.o.m. The SBV lowered its policy rates, including the refinancing rate, re-discounting rate and OMO rates, by 50 bps to 4%, 2.5% and 2.5%, respectively. The SBV also lowered the cap on one to less than six-month term deposits from 4.25% to 4.0% and the cap on VND lending interest rates from 5.0% to 4.5% in several sectors. These rate cuts are aimed at supporting enterprises amid the pandemic.
Crude oil price (WTI) fell 5.61% to USD40.22 per barrel in September, while Brent crude tumbled 9.56% to USD40.95 per barrel. Oil price retraced back in September after 4 months of successive gains. Mounting concerns on fuel demand amidst rising infection cases weighed on oil prices. Crude palm oil (CPO) prices declined 1.80% to RM2,839/MT in September.
In the near term, given the uncertainties posed by the US Presidential election in November, and the rising economic and geo-political tensions between the US and China, the market can expect bouts of volatilities. Globally, we have yet to shake off the scourge of Covid-19 pandemic. However, countries are determined to press on with progressive reopening of businesses, we are of the view that the worst in terms of the economic impact of the pandemic is likely to be over and countries are on the road of recovery, though instances of resurgence continue to appear. Despite the Covid-19 pandemic which has trampled the economy, US stock indices, in particular NASDAQ, have recovered very well since the market bottom in March 2020, driven by unprecedented fiscal and monetary injections. In terms of valuation, the US market is now the highest over the last 16 years. Hence, we are cautious about the market outlook.
The resulting market volatilities may provide opportunities to increase exposure in value stocks that are sold down well below their intrinsic value. Also, despite the significant market recovery as shown by the market indices, there are still stocks with good fundamentals that are trading at depressed prices. 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.
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