Monthly Review

Dear Investor,

Market Review

In April 2019, the MSCI Far East ex-Japan Index rose 1.99%, but it underperformed the MSCI World Index which was up 3.37%.

The Dow Jones Industrial Average Index (DJIA) was up 2.56% over the month, while the S&P 500 index gained 3.93% and Nasdaq Composite Index rose 4.74%. The Fed made no move on interest rates as policymakers took heart in continued U.S. job gains and economic growth and held out hope that weak inflation will edge higher. Stocks initially added to gains, while U.S. Treasury yields fell and the dollar stayed weaker after the statement. However, the US Treasury yield and the dollar reversed course after comments from Powell suggesting that the recent decline in inflation could be transitory. The US Dollar index was up 0.20% in April.

In the Eurozone, the Stoxx Europe 600 Index gained 3.23%, extending gains through a fourth straight month (its longest winning streak since May 2017). Rising oil prices and positive euro zone economic growth and employment data helped calm investor sentiment. The risk of a no-deal Brexit is on the rise after the British Parliament rejected UK Prime Minister Theresa May’s withdrawal agreement for a third time.       

The China A-shares market resumed its uptrend to gain 1.06%, while Hang Seng Index was up 2.23%. China equities started off April with solid momentum, but it quickly faded after the strong 1Q GDP reported data set off concerns on policy stimulus roll back. Hong Kong banks (+6% m.o.m) performed well, while local developers (-2.6% m.o.m) consolidated.

The South Korean market rebounded 2.94% this month, while the Korean Won continued to depreciate, weakening 2.29% m.o.m against the USD despite better than expected earnings reports with majority of the listed companies having reported either in-line or beating consensus earnings. Most sectors turned positive in April. Consumer Discretionary (+10.4% m.o.m) led the KOSPI rally, with new car releases of Hyundai Motor Group showing strong sales volume leading to overall stronger earnings in the auto sector 

Meanwhile in Taiwan, the index continued its uptrend to gain 3.07% in April, driven mainly by expectations of semiconductor inventory correction to end by mid-year. Apple iPhone sales’ expectations seem to have troughed and a continuation of aggressive pricing policy by Apple could further boost demand. Rebound in Taiwan’s PMI and capital goods imports as well as better-than-expected China PMI for March further supported markets. Sentiment also improved with Hon Hai chairman Terry Gou’s announcement to run for the presidency in the upcoming elections.

The STI rallied 5.83% in April. Financials and Consumer Staples were the sector winners. The three banks (DBS, UOB and OCBC) and Wilmar climbed 10-12% m.o.m. Industrials also did well (+5.4%) led by Keppel Corp’s +12% and ST Engineering +6%.

Malaysia’s KLCI dropped 0.08% while the Malaysian Ringgit depreciated 1.27% m.o.m amid fears of likely Malaysia debt exclusion from FTSE Russell WGBI Index. Construction stocks outperformed on revival of the downsized ECRL and Bandar Malaysia projects.

In Thailand, the SET index was up 2.13%, while the Thai Baht depreciated by 0.54% against the USD. The utilities (+7.8%), IT (+5.3%) and Communication Services (+4.2%) were the best-performing sectors. Key laggards in April were materials (-2.4%) and consumer discretionary (-1.2%). The Cabinet has approved a Thb21.8 billion new stimulus package to boost the economy (0.2% of annual GDP).

The Jakarta Composite Index (‘JCI’) slid 0.21% during the month. The incumbent President Jokowi is expected to win Indonesia election, based on both real count (of 51% data collected) and quick counts. Consumer discretionary, Financials and Industrials led in April. Staples and Materials were the worst laggards, sliding 6 to 7%.

In the Philippines, the PSEi was up 0.40%. President Duterte’s approval of the 2019 budget and S&P’s upgrade of the country’s credit rating were key macro developments in April. Further deceleration of inflation and comments from BSP Governor Diokno that a potential policy rate cut will be discussed as early as May led to outperformance of the property sector. On the other hand, lower rates is seen as negative for banks, which underperformed.

Vietnam’s VN-Index took a breather in April, declining 0.11% over the month. Utilities & Energy sector advanced on the back of surging oil price, while Real Estate, Consumer Staples and Financials retreated. Rising oil and electricity prices pushed April headline CPI up 0.3% m.o.m and 2.7% y.o.y, whilst core inflation inched up 0.1% m.o.m and 1.9% y.o.y.

Crude oil price (WTI) continued its rally, gaining 6.27% to USD63.91 per barrel in April, while Brent crude gained 6.45% to USD72.80 per barrel. Crude touched a six-month high on 23 April 2019 after President Trump decided to stop sanctions exemptions on purchase of Iranian crude. Average Crude palm oil (CPO) prices recorded RM2,067.43/MT in April, 3.10% higher compared to RM2,005.27/MT in March.

The 10th round of trade negotiations between the US and China has just finished in Beijing on 1st May 2019 and the 11th round of negotiation is scheduled to be held on 8th May 2019 in Washington DC. Although both sides appeared to be working very hard at achieving a trade deal, the outcome remains uncertain, and the emerging rivalry and lack of trust between the US and China would be a source of continuing uncertainties. In its Interim economic projections just released, the OECD has projected global economic growth to ease (to 3.3% for 2019), with downside risks continuing to build.  Continuation of the market rally seen so far this year would have to be supported by continuous improvement in macro-economic data or better than expected corporate earnings.

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.