Monthly Review

Market Review

In July 2018, the MSCI Far East ex-Japan Index was down 0.30%, underperforming the MSCI World Index which was up by 3.05%.

The Dow Jones Industrial Average Index (DJIA) was up 4.71% over the month, while the S&P 500 index gained 3.60% in the same period. The US continued to report above-trend economic data and markets responded to a raft of strong company earnings reports. Retail sales grew 6.60% y.o.y for the month of June, the fastest pace of spending growth since 2012. GDP in the second quarter rose at an annualised pace of 4.1% over the previous quarter with inflation at 2.9% in June, beating Fed’s target. The U.S Dollar index was up 0.09% over the month. 

In Eurozone, the Stoxx Europe 600 Index was up 3.07% over the month. Trade tensions de-escalated between US and Europe after EU president visited Washington and agreed to work together on new tariffs. The European Central Bank’s Monetary Policy Committee meeting in July was uneventful, with all key interest rates remaining unchanged and the committee reaffirming its intention to end quantitative easing by end of the year. The Euro appreciated 0.06% m.o.m against the US Dollar.      

The Shanghai Stock Exchange Composite Index was up 1.02% over the month, while the Hang Seng China Enterprises Index and the Hang Seng Index were down 0.44% and 1.29% respectively. The market weakness was mainly due to concerns over the escalation of US-China trade tensions with US’ newly announced tariff on USD200 billion worth of Chinese goods that could take effect in September to October. Consumer discretionary (-8.9%) underperformed due to the lacklustre outlook of auto industry against the background of decelerating SUV sales growth and rising raw material costs. The Renminbi, one of the worst performing currencies, depreciated 2.77% m.o.m against the U.S. Dollar.

The South Korean market was down 1.33% this month. The index fell below 2,300 on the first trading day of the month and has remained range-bound amidst continuing trade uncertainties and lack of strong catalyst. Meanwhile in Taiwan, the index was up 2.04% over the month, while its currency depreciated 0.30% against the US Dollar. The Apple supply chain names corrected on escalating trade tensions between US and China but, overall, tech stocks remained supported by decent sales and strong 2Q earnings.

STI rebounded in July, up 1.56% m.o.m. Singapore Press Holding was the best performing stock in July, lifting consumer discretionary sector higher (+7% m.o.m) while industrial was the laggard (-1.4% m.o.m), dragged down by Singapore Airlines. During the month, Singapore government announced new property cooling measures by raising additional Buyer’s Stamp Duty rates and tightening loan to value limits on residential property purchases. Property names fell after the announcement. The Singapore Dollar appreciated by 0.08% against the USD.

The KLCI up 5.48% m.o.m, while MYR depreciated 0.32% m.o.m against the USD. The market ended on a positive note in line with the recovery in emerging markets and bargain-hunting by investors. Construction was the top performing sector in July amidst better investor’s sentiment after the confirmation of some of the mega infra projects following a government review.

In Thailand, the SET index turned around from a poor June to chalk up a 6.66% m.o.m gain in July. THB depreciated by 0.51 against the USD.  The strong July performance was partly due to better than expected 2Q results from Thai banks, and foreign investor flows which turned a small positive of USD55 million during the month. YTD flow remains hugely negative USD5.60 billion.

The Jakarta Composite Index was up 2.37% m.o.m in July. After 5 months of consecutive foreign selling, July saw USD54 million net inflows, which we believe is part of the reason that has moved up the market. Rupiah continued to depreciate by 0.96% to close at Rp14,414/USD.

The PSEi was up 6.65 % m.o.m in July. Inflation spiked up to 5.2% y.o.y in June, resulting to an average inflation of 4.8% in 2Q18 from 3.9% in 1Q18. The market rebounded strongly on expectation that inflation would peak in 2H18 and the possibility of the BSP raising the policy rate by 50 bps. Meanwhile, the Philippines PESO strengthened 0.75% to Php53.10/USD.

The Vietnam market’s correction slowed in July, and the VN-Index ended the month 0.46% down 0.46% m.o.m. Market breadth saw more decliners (199 dropped, 153 advanced) while daily traded value on HOSE tumbled 15% m.o.m, the lowest since October 2017. Foreign investors withdrew USD120 million from the local market. The VND was down 1.40% against USD in the month, the second worst performing currency in our coverage.

Crude oil price (WTI) corrected 7.27% to USD$68.76 in July, while Brent crude also gave up 6.53% to USD74.25. Crude oil prices corrected during the month following news of surprise gain in the US crude inventories and Saudi’s near record volume output. Average Crude palm oil (CPO) prices stayed at RM2,184.48/MT, 6.48% lower when compared to RM2,335.81/MT in June.

Most of the emerging markets selloff appears to be easing and foreign investors flows turned positive in the month of July. It appears that the relief rallies in emerging markets equities will continue as we believe equities in the region have become more attractive after the sell down.  We see emerging market’s equities as having more attractive valuation coupled with stronger growth outlook as compared to developed market’s equities. We think this is a better entry point to some of the emerging markets such as Philippines and Vietnam after the falls that these markets have experienced since the beginning of the year. 

 Hence, we have started to increase our equity exposure where we see valuation has become compelling. We will continue to invest in quality stocks that have strong foreseeable earnings growth, low gearing position and reasonable valuation.  At the same time, 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.