Monthly Review June 2020
In May 2020, the MSCI Far East ex-Japan Index was down 1.27%, while the MSCI World Index gained 4.63%.
The Dow Jones Industrial Average Index (DJIA) was up 4.26% over the month, while the S&P 500 index rose 4.53% and the Nasdaq Composite Index gained 6.75%. The DJIA rallied on positive COVID-19 vaccines development. Drug maker Moderna released compelling data from phase one clinical trial for its experimental COVID-19 vaccine, giving much hope to the market that is eagerly looking for a treatment for the deadly illness. The US Dollar index was down by 0.68% in May.
In the Eurozone, the Stoxx Europe 600 Index gained 3.04% amid optimism over economic reopenings and potential massive stimulus package from the European Union. The market is expecting the European Commission to present its proposal for a bailout package for a 500 billion Euros fund to aid recovery efforts.
The China A-shares were down 1.16%, while the Hang Seng Index closed 6.83% lower m.o.m. The intensifying US China confrontation, which expanded from trade to tech, financial and geopolitical tension has disturbed the market sentiment. China’s move to impose the Hong Kong national security law triggered a fresh round of social protests in Hong Kong and negative responses from UK and US.
The South Korean market soared 4.21% in May. Korea started to show signs of recovery as several indicators such as consumer sentiment and retail sales have turned out better than feared. The central bank made a 25 bps rate cut 0.5% in the month in reaction to deflation and recession risk.
Meanwhile in Taiwan, the index finished marginally lower 0.45%. The tech sector remained under pressure as a fresh set of restrictions on Huawei were announced by the US Department of Commerce, closing down Huawei’s access to semiconductors supply from TSMC.
Singapore’s STI slid 4.32% in May. Singapore’s economy is facing its worst contraction since independence as a result of measures implemented world-wide to contain the spread of COVID-19 outbreak. The government expects GDP to shrink 4% to 7% this year after announcing its 1Q GDP of -0.7% y.o.y. The government will inject a new SGD33 bil stimulus package in an attempt to cushion the major economic fallout.
Malaysia’s KLCI was up 4.65% amid strong participation from retail investors. The average trading value surged sharply to a record high of RM9.38 bil on 28th May 2020. Key developments include the BNM lowering OPR by 50 bps to 2% and Prime Minister’s announcement of the fourth extension of the movement control order to 9th June 2020.
In Thailand, the SET index gained 3.16%. The Bank of Thailand cut its benchmark interest rate by 25bps to a fresh record low of 0.5% and said it was ready to use additional policy tools if needed with the economy expected to shrink further. Besides, the government extended the country’s state of emergency for a second time to end of June.
The Jakarta Composite Index (‘JCI’) made a slight gain of 0.79%, while Indonesia Rupiah appreciated 3.33% m.o.m. The government has announced that it would add 56 new infrastructure projects and social programs worth USD97 bil over the next 5 years to rescue the economy from the fallout of the COVID-19 pandemic.
In the Philippines, the PSEi rebounded 2.42% in May. The positive sentiment may have been triggered by the easing of lockdown in Metro Manila and other parts of Luzon in the second half of May.
Vietnam’s VN-Index surged 12.40% in May. Vietnam’s central bank joins peers in the region and announced cut in policy interest rates for the second time in two months, reducing the refinancing rate to 4.5% from 5% and the discount rate to 3% from 3.5%.
Crude oil price (WTI) rebounded 88.38% to USD35.49 per barrel in May, while Brent crude gained 39.81% to USD35.33 per barrel. Oil recorded its best month since September 1990 mainly due to improving demand after major economies come out of lockdown coupled with a global supply cut. Crude palm oil (CPO) prices gained 12.89% to RM2,373/MT in May.
The global stock markets and crude oil price have rebounded strongly in the month, helped by signs of slowing down of COVID-19 outbreak and optimism of economy reopening. We believe that actions taken by the governments in controlling the spread of the disease and in helping businesses mitigate the financial impact will help the markets to bounce back fairly quickly 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.
The risk that the COVID-19 may have 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, there are signs of rising economic and political tensions between the US and China. The resulting market uncertainties and attendant volatilities would 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.