Monthly review

Market Review

In February 2018, the MSCI Far East ex-Japan Index was down 4.85%, underperforming the MSCI World Index which declined 4.3%.

 The Dow Jones Industrial Average Index (DJIA) was down 4.3% over the month, while the S&P 500 index gave up 3.9% in the same period. The losses snapped a streak of 10 straight monthly gains. February was a turbulent period for the stock market, seeing the return of wild price swings for stocks after a long period of steady rise.   The Dow plummeted more than 3200 points or 12% in just 2 weeks. The losses were triggered by concerns over a stronger than expected inflation, which would result in rates rising more than expected, threatening to slow growth for economy and stocks.  In his first testimony since he was sworn in as chairman of Federal Reserve, Jerome Powell highlighted that the strengthening economy and the central bank remains on track to gradually lift short term interest rates.  The U.S Dollar index was up 1.7% over the month.  

 In Eurozone, the Stoxx Europe 600 Index was down 4.0% over the month. The index closed in the red for the month of February, in line with losses in other global equity markets as investors started to price in the probability that Federal Reserve may raise interest rates 4 times this year, instead of 3 times as previously signalled.   Euro depreciated 1.8% against the U.S. Dollar over the month.

 The Shanghai Stock Exchange Composite Index was down 6.4% over the month, while the Hang Seng China Enterprises Index and the Hang Seng Index lost 8.7% and 6.2% respectively. The sell-off in early February was led by a correction in the US, although it rebounded on a good set of earnings results.  In a surprise move, China’s Communist Party announced the move to abolish term limits on the presidency.  This proposal would allow President Xi Jinping to remain as President beyond the end of his second term in 2022.  In other news, Chinese government seized control of insurance giant, Anbang Insurance Group whose chairman had been prosecuted.  The Renminbi was down 0.7% against the U.S. Dollar.

 The South Korean market sank 5.4% this month as foreigners reversed their net buying position in January, underperforming the MSCI Asia ex-Japan index.  The market move was more driven by global flows rather than fundamental drivers, in line with recent emerging market sell-off. The nation’s electronics giant, Samsung Electronics launched its flagship S9 smartphone this month, releasing 2 versions of the device.  Meanwhile in Taiwan, the index declined 2.6% over the month, while its currency depreciated 0.6% against the US Dollar.  Taiwan market is now trading at cautious levels mainly due to concerns about the heavy weighted tech sector. 

While most Singapore stocks closed February in the red, the three big banks chalked up good gains, bringing financials sector +3.5% m.o.m, the only sector with positive return. As the Singapore Monetary Authority’s April policy review draws nearer, a broadening of growth drivers beyond the tech sector and an ensuing reduction in labour market slack remain key for the potential policy tightening.

 The Thai market was flattish during the month with some headwinds of possible delayed election news during the first half of the month. Big-cap stocks outperformed mid-cap stocks. Given the heavy weightings of energy stocks and financial services in the SET, the country’s index outperformed most of its regional peers. As expected, the Bank of Thailand held the policy rate at 1.5%.

 The Jakarta Composite Index chalked up another new record of 6689 on 19 February, before easing, and closed at 6,597 points, -0.1% m.o.m. February inflation was up 0.17% m.o.m and 3.18% y.o.y. President Jokowi has nominated Perry Warjiyo, currently a deputy governor at Bank Indonesia, as the sole candidate to replace BI Governor Agus Martowardojo whose term ends in May. Pertamina has increased the retail price of non-subsidized gasoline (RON92, RON95) and non-subsidized diesel fuel by 3-8%, but kept RON90 and subsidized RON88 and diesel fuel price unchanged.

 During the month, the PSEi declined 3.3% m.o.m to close at 8,475 points. While weak regional markets contributed to the PSEi’s decline, investors were concerned by the PHP depreciation, which was spurred by a record trade deficit.

 The Malaysian economy expanded 5.9% in 2017 vs 4.2% in the year before with private sector demand being the primary driver of growth.   Stamp duty on share of mid and small cap companies in Malaysia will be waived with effect from March 2018 for 3 years.  This is in line with efforts to stimulate vibrancy of the local bourse. The nation’s GDP grew 5.9% y.o.y in 4Q17, falling slightly under last year’s growth of 6.2% y.o.y in the same period.

 The Vietnam Index went on a roller coaster ride in February. It opened the month above 1,100, then corrected 10% to 1,004 before reclaiming all lost ground and more to end the month at an all-time high of 1,121 points. Headline CPI rose 0.7% m.o.m, 3.2% y.o.y with the largest contribution from F&B and transportation spending. Banks & real estate led the market, while construction and oil & gas took a hit.

Crude oil price (WTI) was down 4.8 % to USD61.64 over the month and Brent crude declined 4.7% to USD65.78.  The slump in oil prices was driven by rising rig count and crude oversupply in the US following better crude prices.  The EIA data showed that the U.S output remains above 10 million barrels per day, keeping domestic production on track to meet their estimates for an increase to 11 million barrels per day in late 2018. Gold price dropped 2.0% over the month to USD1318/oz.  Average Crude palm oil (CPO) prices rose 2.8% m.o.m in February.

 The recent US market corrections sent the Asia ex-Japan markets into a nosedive.  While the markets in Asia and ASEAN have bounced back from the sudden drop in the first 2 weeks of the month, we are cautious about the market outlook.  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.