Monthly Review

Dear Investors,

Market Review

In February 2020, the MSCI Far East ex-Japan Index slid 2.38%, while the MSCI World Index plunged by 8.59%.

The Dow Jones Industrial Average Index (DJIA) was down 10.07% over the month, while the S&P 500 index fell 8.41% and the Nasdaq Composite Index slid 6.38%. The US Dollar index was up by 0.76% in February. US stocks continued its downtrend amid growing concerns about the spread of the COVID-19 and the surge of cases in more countries outside China.  There was increasing worry that the outbreak could upend the global economy. Federal Reserve Chairman Jerome Powell issued a statement saying the U.S. central bank would act as appropriate and monitor the coronavirus impact, an announcement that raised expectations for monetary easing.

In the Eurozone, the Stoxx Europe 600 Index was down by 8.54% as investors weighed concerns over the spread of the coronavirus in Italy and across the world. The WHO sent a mission to Italy to support Italian authorities as the death toll in the country from COVID-19 climbed. Meanwhile, Switzerland and Austria confirmed first case of the virus in the month.            

The China A-shares were down 1.59%, while the Hang Seng Index closed 0.69% lower m.o.m. China equities experienced a sharp sell-off when the Chinese market reopened after an extended closure following the Chinese New Year holiday.  The market quickly recovered the losses as policy support began rolling out. The People’s Bank of China lowered the medium-term loan rate by 10bps and rolled out credit supports for corporates as well as interest payment delay and loosened NPL recognition. While it appears that COVID-19 is being contained in China, the virus spread in countries outside China has accelerated, triggering fears on global growth.        

The South Korean market tumbled 6.23%, while Korean Won depreciated by 0.36% amid COVID-19 fears. After a rapid surge in cases starting from 21st February, Korea quickly became the second largest infected nation with more than 2.3k infected by month end. 

Meanwhile in Taiwan, the index declined 1.77%. The market trended up in the first half of the month, seemingly having priced in some supply disruptions from the outbreak. The market corrected in the second half amid renewed fears of the spread of epidemic in countries outside China, as well as lowered expectations of smartphone sales.       

Singapore’s STI was down 4.52% in February, mirroring other major markets. All sectors closed in the negative territory. Maritime, consumer goods and industrials were the least affected, while consumer service, utilities and telcos experienced the biggest drops.   

Malaysia’s KLCI slid 3.16%. Malaysia’s domestic political turmoil exacerbated the bearish mood on Bursa Malaysia even as the Covid-19 health crisis crept its way across the globe. Amid the expanding threat of the COVID-19 outbreak, Malaysian attention was focused on the local political development that led to the resignation of Tun Mahathir as Prime Minister and the collapse of the Pakatan Harapan government, and the appointment of Tan Sri Muhyiddin as Malaysia’s 8th Prime Minister.

In Thailand, the SET index tumbled 11.47%. The index closed down sharply on the concern of COVID-19. On top of that, political risk heightened as high-school and university students around the country held rallies against the dissolution of the opposition Future Forward Party.   

The Jakarta Composite Index (‘JCI’) was down by 8.20%, while Indonesia Rupiah depreciated 3.75% m.o.m. The government unveiled an IDR10 trillion fiscal stimulus package to mitigate the downside impact of the virus outbreak on tourism and to boost domestic consumption. Given the size of the package, it is expected that the impact on GDP growth will be minimal.     

In the Philippines, the PSEi tumbled 5.73%. Despite a strong start to the month, sentiment quickly turned and succumbed to heavy selling pressure as global markets reeled under heightened COVID-19 fears. On top of global growth fears due to COVID-19, the Philippines also has own political challenges. These include the renewal of ABS-CBN’s franchise which is set to expire at the end of March. ABS-CBN and President Duterte have had an ongoing dispute over the past 3 years where Duterte threatened to block the renewal of ABS- CBN’s franchise after the company failed to air his campaign ad before the May 2016 presidential elections. As a result, congress has been sitting on the franchise renewal with no scheduled hearing at this time.

Vietnam’s VN-Index retreated 5.81% in February on concern that the worsening coronavirus outbreak outside of China could impact Vietnam adversely in many aspects, including tourisms, exports & imports, supply chains of raw materials for manufacturing & processing industry. 

Crude oil price (WTI) tumbled 13.19% to USD44.76 per barrel in February, while Brent crude eased 13.14% to USD50.52 per barrel as global demand concerns grew, with OPEC+ awaiting Russia’s response to its proposal to cut output further. Crude oil majors including Total and BP projected a significant hit to global oil demand this year due to the virus. Crude palm oil (CPO) prices slid 10.72% to RM2,357/MT in February.

The second wave of COVID-19 outbreak, this time in countries outside China, has created fears and uncertainties to the global economic growth. The outbreak in China seemed to have been brought under control, but the second wave of outbreak in Korea might put pressure on the global tech supply chain. While it is as yet unclear how long it would take to put the virus outbreak under control and the economic impact is expected to be felt for some time, we believe that given the actions taken by the governments in controlling the spread of the disease and in helping businesses mitigate the financial impact, the markets can be expected to bounce back fairly quickly, although certainties associated with the nature of this novel type of virus still remained. US Fed has just announced an emergency 50 bps rate cut as a pre-emptive move to protect the US economy from the coronavirus.

Hence, we remain cautious on the equity market outlook for 2020.  The market uncertainties and the attendant volatilities would provide opportunities to increase our equity exposure when we see valuations 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.