Monthly review

January 2017

In January 2017, the MSCI Far East ex-Japan Index gained 6.4%, outperforming the MSCI World Index which was up 2.4%. The month saw capital flow recovery in the emerging markets, with China, India and the Philippines leading in gains.

 The Dow Jones Industrial Average Index (DJIA) was up 0.5% over the month. DJIA has broken the psychological 20,000 level in January. The index’s upward momentum weakened towards the end of the month as investors reacted to President Trump’s decision to ban immigrants from seven predominantly Muslim countries. In a meeting with pharmaceutical executives, President Trump also promised to reduce taxes, regulations, and the time it takes for FDA approval, in exchange for drug makers’ commitment to lower drug prices and bring manufacturing jobs back to the US. In some major result announcements, Apple beat expectation by posting earnings of USD3.38 per share versus the consensus estimates of USD3.22 per share, while ExxonMobil missed the fourth-quarter earnings expectation. The US Dollar Index (DXY) was down 2.6% over the month.

 The Stoxx Europe 600 Index was down 0.4% over the month, after gaining for two consecutive months. Eurozone has been showing signs of recovery in its economy, with 4Q 2016 GDP growth of 0.5% beating market expectation of 0.4%. The unemployment rate also declined to 9.6% in December 2016, the lowest level since May 2009. Eurozone’s inflation rate increased to 1.8% in December, the highest level since February 2013 and getting closer to ECB’s 2% target. The Euro was up 2.7% against the US Dollar over the month.

 Over the month, the Shenzhen Shanghai CSI 300 Index was up 2.4%, while the Hang Seng China Enterprises Index was up 4.4%. China’s GDP expanded 6.7% in 2016, lower than the 6.9% growth in 2015. It was the weakest full-year expansion since 1990 but within the government’s target range of 6.5-7.0%. In 4Q 2016, GDP grew by 6.8% y.o.y, compared to the market expectation of 6.7% growth. It was the strongest growth since the fourth quarter 2015, supported by strong consumer spending, higher government expenditure and robust bank lending.

 Crude oil price was down 1.7% over the month. A Reuters survey showed that the Organization of the Petroleum Exporting Countries (OPEC) in January achieved 82% compliance with its promised production cuts, well above most market forecasts. Iran, which was allowed to raise output under the OPEC deal because sanctions had crimped past supply, pumped an additional 20,000 barrels per day. Following months of increased drilling, U.S. oil production has risen by 6.3% since July last year to almost 9 million barrels per day, according to data from the U.S. Energy Information Administration.

 In the ASEAN region, Singapore’s manufacturing output beat market expectation and jumped 21.3% y.o.y in December 2016, underpinned by robust demand in the key electronics and biomedical manufacturing clusters. In the Philippines, GDP grew 6.6% in 4Q 2016, bringing 2016 GDP growth to 6.8%. The healthy growth was driven by resilient private consumption and investment. It is widely expected that GDP growth will remain healthy under the Duterte’s administration that which aims to increase infrastructure spending, liberalize foreign direct investments, push through tax reform and fight against poverty, among others.

 The outlook in the Asia Pacific region, especially the ASEAN region, continues to be challenging amid the changing and uncertain political climate, slowing economic growth in China, the uncertainty on the effect of “Brexit”, the uncertainty over what Donald Trump’s Presidency will bring, and potentially more interest rates hikes by the Fed. We will continue to invest in quality stocks that have strong foreseeable earnings growth, low gearing position and reasonable valuation. 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.

In January 2017, the three best performing markets in the Asia ex-Japan region were Hong Kong (+6.18%), Singapore (+5.76%) and the Philippines (+5.69%). The worst performing markets were Indonesia (-0.05%), Malaysia (+1.82%) and South Korea (+2.03%). The Dow Jones Industrial Average Index gained 0.51%, while NASDAQ was up 4.30% over the month.

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.