Monthly Review

Dear Investor,

Market Review

In June 2019, the MSCI Far East ex-Japan Index gained 6.89%, outperforming the MSCI World Index which was up by 6.46%.

The Dow Jones Industrial Average Index (DJIA) was up 7.19% over the month, while the S&P 500 index gained 6.89% and Nasdaq Composite Index rebounded 7.42%. The rise marks a reversal from the previous month when both the Dow Jones and S&P 500 were down more than 6%. Fuelling the US market’s rise was indication by Jerome Powell that the US Fed could cut rates if the US economic outlook deteriorated as well as expectation of positive development at the G20 summit when President Trump was expected to meet President Xi. The US Dollar index slid 1.66% in June.

In the Eurozone, the Stoxx Europe 600 Index was up 4.28%. Renewed trade optimism helped prop up European shares after a report said the US and China have reached a tentative truce ahead of a highly anticipated G20 summit at the end of the month.      

The China A-shares gained 5.39% following the sharp correction in May, while Hang Seng Index was up 6.10%. The outperformance was mainly driven by diminishing trade war concerns after President Trump and President Xi confirmed to meet during the G20 summit and a dovish Fed outlook. 

The South Korean market was up 4.35% this month. Most sectors performed positively, except Utilities and Energy which performed negatively amidst oil price volatility.

Meanwhile in Taiwan, the index was up 2.21% led by the tech sector while Financials and Materials posted small underperformance. Large cap tech names such as TSMC, Hon Hai, Delta, and Win Semi led the rally.  

The STI rebounded 6.54% after the 8.31% decline in May. All sectors registered gains with Consumer Staples sector posting a 12% return mainly driven by Wilmar (+13%). Real Estate (+10%) was the second best performing sector, supported by City Development, CapitaLand Commercial Trust, UOL Group and CapitaLand (+10-15% m.o.m).

Malaysia’s KLCI gained 1.29% while the Malaysian Ringgit reversed its downtrend to appreciate 1.21% m.o.m. Announcement of the Malaysian government’s offer to takeover all of Gamuda’s highway concessions for RM2.36 bil caused a short term hike in the construction sector.

In Thailand, the SET index rallied 6.80%, while the Thai Baht continued to appreciate by 2.76% against the USD. The Thai market is the best performing market in the region mainly driven by reduction of political risk premium. In addition, Thai PM Prayut Chan-o-cha confirmed that the new government would be in place by mid-July.

The Jakarta Composite Index (‘JCI’) reversed its downtrend in the previous two months and gained 2.41% this month. The Indonesia Constitutional Court unanimously upheld the re-election of President Jokowi, rejecting a petition by his challenger Prabowo Subianto to declare the election invalid, citing lack of evidence. Bank Indonesia kept its policy rate on hold at 6% but eased reserve requirement by 50bp effective from 1st July 2019. 

In the Philippines, the PSEi was up 0.37%. This month’s underperformance was amid BSP’s decision to keep rates on hold, after the latest inflation data showed a slight uptick to 3.2% y.o.y in May 2019.

Vietnam’s VN-Index resumed its downtrend to drop 1.04% over the month. Vietnam officially signed a Free Trade Agreement with the European Union on 30th June 2019. Meanwhile, Vietnam posted a GDP growth of 6.76% y.o.y for 1H19 GDP.

Crude oil price (WTI) rallied 9.29% to USD58.47 per barrel in June, while Brent crude gained 3.19% to USD66.55 per barrel. A higher crude oil price was mainly driven by a bullish DoE crude inventory stats and a potential military strikes on Iran by US. Average Crude palm oil (CPO) prices recorded RM1,978.21/MT in June, 0.42% higher compared to RM1,969.95/MT in May.

The market is seeing a relief rally following a trade truce reached between the Presidents of the US and China at the G20 summit, and their agreement to resume the trade negotiations. We still think the tension between the US and China will be prolonged and fraught with uncertainty and it is unlikely to end anytime soon as the differences appear to transcend trade issues. While the trade dispute remains unresolved, continuation of the punitive tariff imposed on trades between the US and China would weigh on economic growth.  It remains to be seen how far the impasse will have on the global economy, but the US Fed has indicated that it would be prepared to cut rates if the US economy deteriorated.  As a result, the market will likely remain volatile in 2019. Continuation of the market rally seen earlier this year would have to be supported by resolution of the trade disputes between US and China and continuation of satisfactory global economic growth.

Hence, we remain cautious on the equity market outlook for 2019 but we think that the market uncertainties and the attendant volatilities would provide us an opportunity 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.

Disclaimer: Information herein has been obtained from and is based upon sources Pheim Unit Trusts Berhad 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 Berhad 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.