Monthly Review

Dear Investor,

Market Review

In December 2018, the MSCI Far East ex-Japan Index was down 3.25%, outperforming the MSCI World Index which was down 7.71%.

The Dow Jones Industrial Average Index (DJIA) plummeted 8.66% over the month, while the S&P 500 index retreated 9.18%. Nasdaq Composite Index tumbled (-9.48%). Investors were worried about the pace at which the Federal Reserve will unwind its easy-money policies and the trade spat between US-China that will slowdown global economic growth, and the US government shutdown that appears likely to stretch into January. The US Dollar index dropped 1.13% in December.

In the Eurozone, the Stoxx Europe 600 Index was down by 5.55% over the month. British lawmakers’ plan to force a Brexit delay if Prime Minister Theresa May’s deal fails to get approved by Parliament in January was one of the uncertainties in European market. The Euro Dollar gained 1.33% m.o.m against the US Dollar.      

The Hang Seng Index declined 2.49% while China A-Shares fell 5.11% in December. The underperformance was driven by a mix of negatives on both the domestic and external fronts. The market was raising scepticism about the US-China trade negotiations making progress. Meanwhile, the latest domestic activity indicators point to a softening in the outlook of China’s retail sales, exports and industrial activity.

The South Korean market slid 2.66% this month. Korea’s manufacturing PMI fell 2.4% to 48.6 in November following a 0.3% drop in October. The Korean Won recorded only a 0.56% gain m.o.m against the USD.

Meanwhile in Taiwan, the index dropped 1.62% this month following weakness in US tech sector and Apple’s downward adjustment of iPhone sales. The market sentiment was further weighed down amid higher political risk following news of the arrest of Huawei’s CFO Meng Wanzhou.

The STI dropped 1.57% in December. Consumer Staples and Discretionary were the only two sectors that had recorded positive returns in December while Telecom was the biggest loser.  

Malaysia’s KLCI was up by 0.64% after shrugging off weakness in the first half of the month. During the month, the cabinet announced to scrap the RM3.5 billion national immigration control system (SKIN) project in which Prestariang holds a 75% stake. 

In Thailand, the SET index retreated 4.75% in December. The Thai Baht appreciated by 2.01% against the USD. The Bank of Thailand delivered its first policy rate hike by 25 basis points to 1.75%. The government was still looking to 24 February 2019 as the election date for Thailand.  

The Jakarta Composite Index (‘JCI’) was up by 2.28% during the month. This was led by the outperformance of Consumer Staples (+8.7%), Utilities (+8.4%) and Industrial sector (+3.6%).

In the Philippines, the PSEi gained 1.33% in December. The improvement in the inflation rate that has softened to 6% in November was the key positive for the month. The central bank kept its policy rate at 4.75%.

Vietnam’s VN-Index slid 3.67% in December. With the Real Estate and Banks leading the decline, the downtrend has spread to all sectors except Consumer Discretionary. 

Crude oil price (WTI) plunged by 10.84% to USD45.41 per barrel in December, while Brent crude also dropped 8.36% to USD53.80 per barrel. The crude oil sell-off continued in December amid concerns of a supply glut and a global economic slowdown. Average Crude palm oil (CPO) prices rebounded to RM1,927.38/MT, 3.32% higher compared to RM1,865.48/MT in November.

We think 2019 will be challenging for equity markets amid the continuing trade spat between US and China that has caused the slowdown in global economic growth. Apple has cut its profit forecast mainly due to lacklustre iPhone sales from China and it has caused spillover effect to other Apple related Technology stocks. We think a likely upside catalyst for the region is the US and China achieving some form of trade deal that will calm investors’ worries over the economic outlook, and the US Fed adopting a dovish stance and slowing the rate hike to prolong the economic growth. 

Hence, we remain cautious on the equity market outlook for 2019 but we think that it provides us an opportunity to increase our equity exposure as 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.