Monthly review

Market Review

In September 2017, the MSCI Far East ex-Japan Index was up 0.1%, underperforming the MSCI World Index which was up 2.1%. The declines in China H-shares and Taiwan were offset by the gains in South Korea and Thailand.

The Dow Jones Industrial Average Index (DJIA) was up 2.1% over the month, renewing its all-time high level. During the month, President Donald Trump proposed the biggest U.S. tax overhaul in three decades, aiming to reduce the corporate tax rate to 20% from 35%. The proposal also calls for reducing the number of personal tax brackets from seven to three (12%, 25% and 35%). On another note, the Republicans failed their latest effort to repeal and replace the Affordable Care Act (also known as Obamacare) after their fellow Republican senators John McCain, Rand Paul and Susan Collins announced their no-votes for the bill, leaving the bill short of the 50 votes it needed to pass before the end-September deadline. Meanwhile, the Federal Reserves (Fed) announced that it would begin reducing its USD4.5-tril balance sheet in October, gradually unwinding a massive stimulus program that started after the economy entered a severe recession nearly a decade ago. The U.S. Dollar Index (DXY) was up 0.4% over the month.

The Stoxx Europe 600 Index was up 3.8% over the month, the biggest monthly gain so far this year. A weakening Euro has taken pressure off Europe’s equities and especially the exporter-heavy German stock index. The Euro was down 0.8% over the month. European Central Bank (ECB) has confirmed that net asset purchases would run at the current monthly pace of EUR60 bil until the end of December 2017, saying that a very substantial degree of monetary accommodation was still needed to support inflation. Inflation rate in September came in at 1.5%, unchanged from August but below market expectation of 1.6%.

Over the month, the Shenzhen Shanghai CSI 300 Index was up 0.4%, while the Hang Seng China Enterprises Index was down 3.4%. Geopolitical tensions proved to be a headwind for Hong Kong/China markets as North Korea fired another missile over Japan and conducted a nuclear test in September. Meanwhile, Credit rating agency Standard & Poor’s (S&P) has downgraded China’s sovereign rating, the first time since 1999, citing an increase in economic and financial risks due to a prolonged period of strong credit growth. S&P also downgraded Hong Kong’s credit rating on the next day, citing potential spillover risks from China to Hong Kong. On another note, China announced its intention to end the sale of fossil fuel-powered vehicles entirely, with regulators currently working on a timetable of the ban. The Renminbi was down 0.6% against the U.S. Dollar.

Crude oil price was up 9.4% over the month, spurred by rising tension around northern Iraq following the Kurdistan region’s vote in favour of independence in a referendum. Turkey condemned the referendum, threatening to cut off the Kurdish oil supplies that have been flowing through its pipelines. Meanwhile, the IEA increased its estimate for demand growth in 2017 by 100,000 barrels per day to 1.6 mil barrels per day, or by 1.7%, citing stronger than expected demand growth in the United States and Europe.

In its September meeting Indonesia’s central bank surprised most economists by lowering interest rates for the second straight month, signalling its growing confidence in navigating the U.S. monetary tightening and controlling inflation at home. The benchmark rate was cut by another 25 basis points to 4.25%. Meanwhile, Thailand’s central bank raised its economic growth forecast for this year to 3.8% from 3.5%, and also upgraded its estimate for exports growth to 8.0% from 5.0%, after its second quarter GDP growth came in the strongest since 2013.

The markets in Asia ex-Japan, especially Hong Kong and China, and other developed markets, such as the U.S. and Europe, have performed very well thus far in 2017. While we are cautiously optimistic about the growth potential in Asia and ASEAN, we are wary about the sustainability of the year-to-date rally in this region. 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. We will continue to invest in quality stocks that have strong foreseeable earnings growth, low gearing position and reasonable valuation.




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.