Monthly Review

Market Review

In September 2018, the MSCI Far East ex-Japan Index was down 0.73%, underperforming the MSCI World Index’s 0.39% rise.

The Dow Jones Industrial Average Index (DJIA) was up 1.90% over the month, while the S&P 500 index gained 0.43% in the same period. US stocks notched their best quarter since 2013 on the back of strong corporate earnings and economic growth. The dollar US Dollar index closed flat compared to last month.

In Eurozone, the Stoxx Europe 600 Index was up 0.24% over the month. The European markets came under some selling when Italy’s ruling coalition called for a 2019 budget deficit target of 2.40% of gross domestic product, up sharply from the previous government’s target budget deficit of 0.80%, marking a significant rise in spending. The gap is seen as potentially triggering downgrades of Italy’s credit rating, worsening the country’s debt outlook, and putting Rome and its populist coalition government on a collision course with Brussels over European Union fiscal rules. The Euro depreciated 0.68% m.o.m against the US Dollar.      

The Shanghai Stock Exchange Composite Index and China A-Share were up 3.53% and 3.13% respectively over the month. Over 3Q18, the index is one of the worst performing markets amid the ongoing US China trade conflict. The Chinese government announced measures to reduce the negative impact from the trade war, including lowering the import tariff on 1,585 products starting from November 2018. However, it is expected that market sentiment will remain cautious in the short term. 

The South Korean market was up 0.87% this month, ending 3Q18 at a 3- month high. Most sectors finished higher than in August, particularly in Refining, Shipbuilding, Telco and Healthcare.

Meanwhile in Taiwan, the index was down 0.52% this month. Losses were pared by the recovery in tech stocks. Tech stocks remained under pressure following the sell-off in global tech and tariff talks between US and China on Apple products.

STI gained 1.36% in September. Industrial and Financial sectors were the outperformers in September as Keppel Corp, Yangzijiang and Sembcorp industries booked a 7 to 15% m.o.m gains. DBS gained 4.6%, the best performing banking stock. However, the gains were partly offset by the underperformance of Consumer Staples stocks. 

The KLCI was down 1.46%, while MYR depreciated 2.58% against the USD. During the month, Bank Negara Malaysia announced holding the policy rate at 3.25%. Attention will be on the midterm review of the 11th Malaysia plan which will be tabled in the Dewan Rakyat on 18th of October.

In Thailand, the SET index was up 2.02% in September. THB appreciated by 1.47% against the USD. The major catalyst was the royal assent for the two key laws that would require the upcoming election to be held between February and May 2019. The country’s current account remained in surplus but narrowed despite firmer exports, as gold and oil imports went higher. 

The Jakarta Composite Index was down 0.70% during the month. Rupiah remained under pressure, and depreciated a further 0.60% in September. During the month, Bank Indonesia raised policy rate by 25bps to 5.75% and introduced new financial instruments to facilitate onshore forex hedging to support the currency.  

The PSEi slid 7.37% in September marking the worst monthly performance in almost two years, while the Peso depreciated 0.87% to close at PHP54/USD, a fresh low. The weakness was driven by the higher than expected August inflation of 6.40% and expectation that September inflation could be higher following the destructive impact of Typhoon Mangkhut. The central bank raised policy rate by 50bps to 4.50%, bringing cumulative hikes to 150bps since May 2018.  

In Vietnam, riding on momentum the VN-Index was up 2.79% in September. The index broke out of the 1,000 barrier to close at 1,017 in September, supported by positive news flows, including FTSE Russell’s announcement to put Vietnam on watch list for possible reclassification from a Frontier market to Secondary Emerging market.

Crude oil price (WTI) was up 4.94% to USD73.25 per barrel in September, while Brent crude also gained 6.85% to USD82.72 per barrel. Crude oil prices jumped on concerns about a tightening of supply when the US sanctions against Iran kicked in, and after OPEC and Russia showed no signs of increasing production. Average Crude palm oil (CPO) prices stayed at RM2,172.18/MT, 0.54% lower compared to RM2,183.91/MT in August.

While a contentious midterm election in the US and further increases in interest rate from the Federal Reserve would present road bumps to investors, a robust US economy is expected to underpin the US market.

We think that in the near term, attention of investors in the Asia ex-Japan markets will still be dominated by the escalating trade tension between US and China and the market will remain volatile until after the US midterm elections. Interest on energy stocks would heighten amidst the rising oil. Meanwhile, the strength of the US dollar against the regional currencies will continue to put the regional markets under pressure. 

In the longer term, we think the most likely upside catalyst for the region is the potential US dollar weakness. With US data no longer surprising on the upside, and a relatively fully priced in of Fed hikes, room for dollar weakness is opening up. Should the dollar indeed weaken, the best exposure is likely to be in Indonesia and Philippines.

We will continue to increase our equity exposure where we see valuation has become compelling especially in quality stocks that have strong foreseeable earnings growth, and low gearing position. At the same time, as we believe in not to be fully invested at all times, we may seek to trim our equity exposure on stocks which have rallied beyond their fundamentals.

Disclaimer : Information herein has been obtained from and is based upon sources Pheim Unit Trusts believe to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Pheim Unit Trusts’ judgment as of the date of the report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of units.