Monthly review

In May 2017, the MSCI Far East ex-Japan Index was up 4.4%, outperforming the MSCI World Index which was up 1.8%.The Dow Jones Industrial Average Index (DJIA) was up 0.3% over the month. Treasury yields have fallen sharply from where they began trading in 2017. As at end of the month, the benchmark 10-year yield hovered near 2.2%; it began the year near 2.5%. Financial stocks took a hit at month end when both J.P. Morgan Chase and Bank of America cautioned at an industry conference that trading was weakening in the second quarter. Energy stocks also performed poorly as crude oil price slipped at the month end. The prospects for the Trump administration implementing pro-growth policies — such as tax reform, deregulation and infrastructure spending — have come into question recently with the White House busy trying to contain several controversies, including the allegation on the Trump administration disclosing highly-classified information to Russia, the withdrawal from the Paris Agreement, and the firing of FBI Director James Comey. The US Dollar Index (DXY) was down 2.2% over the month.

The Stoxx Europe 600 Index was up 0.8% over the month. A poll by YouGov showed that the UK ruling Conservative Party might lose 20 seats at the June 8 election while Labour could gain nearly 30 seats, potentially leading to a hung parliament. The news came after a string of opinion polls showed a narrowing lead for Prime Minister Theresa May’s Conservative Party, shaking investors’ confidence that she would easily win a majority and strengthen her hand in the Brexit negotiations. The Pound Sterling was down 0.5% over the month. In France, Emmanuel Macron won the second round of the presidential election on 7 May by a landslide and became President on 14 May. The Euro rallied as Macron’s pro-EU agenda provided some reliefs to the market after much mayhem caused by the uprising populism around the globe. The Euro was up 3.2% against the US Dollar over the month.

Over the month, the Shenzhen Shanghai CSI 300 Index was up 1.5%, while the Hang Seng China Enterprises Index was up 3.8%. China’s trade surplus fell to USD38.5 bil in April of 2017 from USD39.16 bil a year earlier but above market consensus of USD35.50 bil surplus. Exports increased by 14.3% from a year earlier, while imports jumped 20.8%. China’s consumer prices rose 1.2% y.o.y in April, following a 0.9% rise in March and slightly above market consensus of a 1.1% gain. It was the highest inflation rate since January, as cost of non-food rose at a faster pace and cost of food fell less than in a month earlier. The Renminbi was down 1.1% against the U.S. Dollar.

Crude oil price was down 2.1% over the month. The Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russia, agreed to extend a deal to cut production by about 1.8 million barrels per day (bpd) until the end of March 2018. The initial six-month deal had been due to expire in June 2017. Oil prices fell when the deal was announced because some investors had hoped for a longer extension or deeper cuts.

In the ASEAN region, Malaysia’s economy started on a positive note as the country recorded a strong gross domestic product (GDP) growth of 5.6% in the first quarter of 2017. The healthy growth was supported by strong domestic demand and private investment that grew 7.7% and 4.9% respectively. The growth was well above the central bank’s full year GDP growth target of 4.3% to 4.8% for 2017. It prompted several economists to raise their target economic growth rate for this year. Meanwhile, rating agency Standard & Poor’s (S&P) upgraded Indonesia’s sovereign ratings to investment grade, a long-awaited move that sent Jakarta shares soaring on hopes it could spur a wave of investment into Southeast Asia’s biggest economy. S&P upgraded Indonesia’s sovereign credit outlook to BBB-, its lowest investment grade, up from the previous junk status of BB+. The agency gave the new rating a stable outlook.

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 and Europe, the uncertainty on “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

 

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.