Monthly Review

Dear Investor,

Market Review

In August 2019, the MSCI Far East ex-Japan Index declined 4.78%, underperforming the MSCI World Index which was down by 2.24%.

The Dow Jones Industrial Average Index (DJIA) was down 1.72% over the month, while the S&P 500 index slid 1.81% and the Nasdaq Composite Index fell 2.60%. The market buckled after China retaliated against US’ tariff hikes and imposed tariffs ranging from 5% to 10% on USD75 billion of US goods effective from 1st September and 15th December. The trade war has been intensified with the potential that a currency war will start after US President Trump labelled China as a currency manipulator following the Chinese Renminbi breaking the psychological 7 threshold against the USD. The US Dollar index gained 0.41% in August.

In the Eurozone, the Stoxx Europe 600 Index was down 1.63%. Share prices dived as recession worries were heightened when the US 2 years and 10 years Treasury yield curve inverted for the first time since 2007. Yield curve inversion has traditionally been interpreted as a warning sign of an impending recession.        

The China A-shares were down 0.93%, while Hang Seng Index tumbled 7.39%. The negative impact from prolonged social turmoil in Hong Kong has been reflected in Hong Kong’s latest retail and tourist data, while intensifying trade tensions between the US and China have added further downside risk to the HK economic growth outlook. Hong Kong property sector declined 10%, led by Hysan (-15.2%) and Wharf REIC (-14.6%) given their high exposure to the retail and office segment.  

The South Korean market continued its downtrend to drop 2.80% this month. The market dipped further upon deterioration of macro environments such as Japan’s official removal of Korea from the white list and Korea’s termination of GSOMIA (a military intelligence sharing agreement) with Japan.  

Meanwhile in Taiwan, the index was down 1.90%. The market fell in response to US President Trump’s announcement to impose 10% tariff on the remaining USD300 billion of Chinese imports which included smartphones and notebooks PCs from 1st of September. On top of that, China announced to stop individual travel permits to Taiwan, spurred by the current cross-strait situation.    

The STI slid 5.88% in August. Industrials (-8.4%) were the worst performing sector followed by Telecom (-5.5%). Yangzijiang was the single worst performing stock (-36%) in the index while the three local banks slid -7% m.o.m.  Yangzijiang’s stock plunge was prompted by rumours of the company’s Chairman being under probe in China for disciplinary violations.

Malaysia’s KLCI weakened 1.39% while MYR weakened 2.02%. Exporters such as Rubber Gloves (Top Glove and Hartalega) and Plantations (Sime Darby Plantations) outperformed on the back of the weaker MYR. Meanwhile, the Genting group of companies underperformed due to the acquisition of cash-strapped US casino operator Empire Resorts from the controlling shareholders. 

In Thailand, the SET index dropped 3.33%, while the Thai Baht appreciated by 0.90% against the USD, the best performing currency in the region in August. Most of the sectors were in the red, except for Telecom, Utilities, and Consumer Discretionary. On 20th August, the cabinet approved a stimulus package totalling THB316 billion (about 2% of GDP). The government expects the whole package to boost the economy by 0.55%.  

The Jakarta Composite Index (‘JCI’) declined 0.97%. The central bank made a 25bps surprise cut to its policy rate to 5.50% in August. Energy was the single worst performing sector, having fallen by 11% m.o.m. Discretionary (-6%) and Industrials (-4%) were other laggards. Defensives outperformed with Telecom and Staples up 3.4% and 2.9% m.o.m, respectively, followed by Materials (+1.9%).  

In the Philippines, the PSEi was down 0.82%. The market was weighed down by the intensifying clampdown on the Philippine offshore gaming sector and the escalating US-China trade war. Defensive sectors outperformed the market, led by consumer staples and utilities.

Vietnam’s VN-Index declined 0.77% over the month. Sector-wise, IT was the strongest leader (FPT +9.7%), followed by Consumer Discretionary (MWG +9.5%), and Healthcare (PME +17%). On the flipside, Communication Services, Utilities, and Energy significantly lagged. 

Crude oil price (WTI) tumbled 5.94% to USD55.10 per barrel in August, while Brent crude dropped 7.27% to USD60.43 per barrel. Crude slumped sharply on lingering demand concerns fuelled by fears of slowing global economic growth amidst the deepening trade war. Average Crude palm oil (CPO) prices recorded RM2,125.18/MT in August, 10.65% higher compared to RM1,920.57/MT in July.

The market was weighed down by the recession worries after the US Treasury yield curve inverted for the first time since 2007, which has historically been interpreted as a warning sign of an impending recession. On top of that, investors were surprised by China’s announcement of additional tariffs on US goods following President Trump’s decision to hike the tariffs on imports from China.  The market viewed these tariff moves as intensifying the trade war between the world’s two largest economies. This lends weight to the belief that the tension between the US and China will be prolonged and fraught with uncertainty. The trade dispute 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. As a result, the market will likely remain volatile in 2019 with swings in investor confidence in response to utterances and moves taken by one party or another. However, measures to ease monetary policy that may be taken by central banks can be expected to be positive for stocks.

Hence, we remain cautious on the equity market outlook for 2019.  The market uncertainties and the attendant volatilities would provide opportunities 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.