Monthly Review September 2020
Dear Valued Investors,
In August 2020, the MSCI Far East ex-Japan Index was up 3.39%, while the MSCI World Index gained 6.53%.
The US markets performed strongly. The Dow Jones Industrial Average Index (DJIA) was up 7.57% over the month, while the S&P 500 index rose 7.01% and the Nasdaq Composite Index gained 9.59%. Wall Street extended gains, pulling DJIA closer to a fresh all time high while S&P500 and Nasdaq hit all time high in the month amid hopes for a near term COVID-19 vaccine breakthrough and fresh catalyst from Apple stock split. The FDA issued an “emergency use authorization” for convalescent plasma as a treatment of COVID-19 in hospitalised patients. The US Dollar index was down by 1.29% in August.
In the Eurozone, the Stoxx Europe 600 Index rose 2.86%. European stocks closed higher amid optimism over new stimulus measures and positive development of COVID-19 vaccine despite the Eurozone economy’s 15% contraction in the second quarter.
The China A-shares were up 2.58%, while the Hang Seng Index closed 2.37% higher. China’s July activity data confirmed continuous economic recovery but signalled moderating momentum. August NBS manufacturing PMI eased 0.1 point to 51.0, with a slight moderation of production while the Caixin PMI (which mainly tracks 500 smaller private factories) rose 0.3 point to 53.1, marking a new high since February 2011. Meanwhile in Hong Kong, local shares regained some positive momentum amid stabilising pandemic situation there, allowing the Hong Kong government to relax some social distancing measures. However, geopolitical issues remain a key overhang, with the US imposing sanctions on 11 HK and China officials and suspending its extradition treaty with HK.
The South Korean market gained 3.41% in August despite lack of positive catalyst. With the resurgence of COVID-19, growth stocks and COVID-19 thematic stocks outperformed peers. Consumer inflation was stronger than expected in August, rising further to 0.7% from 0.3% in July due to core prices, rather than supply side price pressure.
In Taiwan, the index slipped 0.58% to end its two month long rally amid rising geopolitical tensions between the US and China. Market was dragged by Tech as the US further tightened restrictions on supplies to Huawei to include foreign-made chips produced by third parties or made by foreign manufacturers using US technology. Huawei supply names such as Mediatek suffered the most, losing 21% in the month.
Singapore’s STI was up 0.11% in August. The Singapore government announced an additional SGD8 bil of support measures to cushion the economic impact from the pandemic, extending wage subsidies and aiming to shore up the hard-hit aviation and hospitality sectors.
Malaysia’s KLCI slid 4.90%. Glove stocks reversed on growing optimism about COVID-19 vaccine development coupled with weakness in bank stocks on expectation that their earnings would be hit by provisions and dividends would be curtailed. Malaysia also announced its 2Q GDP of -17.1% y.o.y as the economy was hit by lockdown, while BNM also revised 2020 GDP estimate from -3.5% to -5.5%. On top of that, Malaysia is set to raise the limit on government debt for the first time since 2009 from 55% to 60% of GDP until 2023 after the parliament’s lower house approved the move.
In Thailand, the SET index dropped 1.35%. Thailand’s economy contracted the most in more than 2 decades, as the nation’s key drivers of trade and tourism remain hobbled by the global pandemic. GDP shrank 12.2% y.o.y, its biggest decline since the Asian Financial Crisis in 1998. More than 10,000 people took part in a mass rally in the Thai capital of Bangkok demanding an end to the military-led administration and calling for the monarchy’s power to be reined in, heightening Thailand’s political risk situation.
The Jakarta Composite Index (‘JCI’) gained 1.73%. Bank Indonesia left its key interest rate unchanged to shore up support for the sagging currency, saying quantitative easing could be more effective than rate cuts in reviving the economy. Indonesia GDP declined 5.32% in the second quarter of 2020, its deepest contraction since 1999.
In the Philippines, the PSEi slipped 0.75% in August. President Duterte keeps Metro Manila under GCQ (General Community Quarantine, a situation less stringent than ECQ, Enhanced Community Quarantine) until end of September as the country’s total COVID-19 cases breached the 220,000 mark of which almost 60,000 remained active. The Philippines central bank kept the benchmark rate unchanged at 2.25%.
Vietnam’s VN-Index soared 10.43% m.o.m. Vietnam’s export rose in August even as the COVID-19 outbreak hurt the nation’s trade activity. Exports climbed 2.5% y.o.y with shipments to the US rising 19% in the first eight months of 2020.
Crude oil price (WTI) continued to recover, gaining 5.81% to USD42.61 per barrel in August, while Brent crude gained 4.57% to USD45.28 per barrel. Oil price continued to move higher on demand pick- up, driven by an expected recovery of economic activities post easing lockdowns. Crude palm oil (CPO) prices gained 2.34% to RM2,845/MT in August.
Most of the countries under our coverage have recorded a huge drop in GDP or entered into a recession for the months April to June. With countries being in progressive stages of 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 the pace of recovery can be expected to vary. We expect the equity market to remain volatile as we believe some markets may have run ahead of the economic recovery and there is a potential risk of winter outbreak for COVID-19. Adding to that would be the uncertainties posed by the US Presidential election in November, and the rising economic and geo-political tensions between the US and China.
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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