Monthly Review

Market Review

In October 2018, the MSCI Far East ex-Japan Index was down 11.30%, underperforming the MSCI World Index which declined 7.42%.

Markets worldwide were sold down in October.  The Dow Jones Industrial Average Index (DJIA) was down by 5.07% over the month, while the S&P 500 index dropped 6.94% in the same period. Nasdaq Composite Index fell even more (-9.20%) as US tech stocks plummeted on worries about tech shares’ earnings. Quarterly sales from big names such as Amazon and Alphabet disappointed investors. The dollar US Dollar index gained 2.10% in October.

In Eurozone, the Stoxx Europe 600 Index was down by 5.63% over the month. The European markets joined the global equity selloff as investors were unable to shake off concerns about growth prospects. The Euro depreciated 2.52% m.o.m against the US Dollar.      

The Hang Seng Index and China A-Share plunged 10.11% and 8.29% respectively over the month. Hong Kong equity market fell for the sixth consecutive month and the Hang Seng Index recorded its biggest monthly decline since January 2016 amid trade and macro concerns.

The South Korean market tumbled, dropped 13.37% this month, the worst performed market under our coverage. The market sell-off was mainly due to heightened risk off sentiment, missed earnings and depreciation of Korean Won against the US Dollar. Foreign investors sold off Korean Won 3.6 trillion in the market, the largest monthly net selling since September 2015.

Meanwhile in Taiwan, the index was down 10.94% this month. Tech sector was sold off the most, underperforming the index, while the financial sector outperformed. 

STI fell 7.31% in October. Genting Singapore dropped 15% m.o.m, one of the worst performed stocks for the month. 

In line with regional weakness on global growth concerns, the KLCI was down by 4.68%, making it the worst performed month in 2H2018. The release of the mid-term review of the austere 11th Malaysia Plan offered no reprieve. Foreign investors net sold RM1.5 billion in October bringing the net sell in 10M18 to RM10 billion. Telcos were the largest losers on the back of regulatory risk, while construction underperformed on MRT Line 2 project cost cut. 

In Thailand, the SET index slid 4.97% in October. THB depreciated by 2.38% against the USD. The hype around the elections next year has faded and foreign outflow continued at an accelerating pace. 

The Jakarta Composite Index was down 2.42% during the month. Rupiah remained under pressure, and depreciated a further 2.06% in October. Bank Indonesia maintained policy rate at 5.75%, while revising down growth projections amid an uncertain external backdrop. September trade balance returned to a surplus of USD227 million as non-oil and gas surplus widened and oil and gas deficit narrowed.   

The PSEi was down 1.88% in October making it the best performed market under our coverage. The performance was driven by steadier economic data, as the September inflation came within expectations and the trade deficit stabilised. The Philippines currency also improved with the Peso having appreciated 1.30% after it recorded a fresh low in September.

The VN-Index tumbled 10.06% in October, erasing all gains in the last two months despite the positive earnings results announced. All sectors faced tumbling prices with the strongest drops in Energy, Financials and Real Estate.

Crude oil price (WTI) was down by 10.84% to USD65.31 per barrel in October, while Brent crude also dropped 8.76% to USD75.47 per barrel. Crude oil prices tumbled in response to news that OPEC production rose in October to its highest level since 2016 and South Korea and India may be allowed to continue to import oil from Iran even after US sanctions take effect. Average Crude palm oil (CPO) prices stayed at RM2,107.92/MT, 2.96% lower compared to RM2,172.18/MT in September.

We think that in the near term, attention of investors in the Asia ex-Japan markets will still be dominated by the escalating trade tension between US and China. The US had let it be known that it was prepared to announce tariffs on all remaining Chinese imports if talks with China failed to resolve the issue by early December. The market will remain volatile until after the US midterm elections. Meanwhile, the strength of the US dollar against the regional currencies will continue to put the regional markets under pressure. 

In the longer term, we think the most likely upside catalyst for the region is the potential US dollar weakness. With US data no longer surprising on the upside, and a relatively fully priced in of Fed hikes, room for dollar weakness is opening up. Should the dollar indeed weaken, the best exposure is likely to be in Indonesia and Philippines.

We will continue to increase our equity exposure where we see valuation has become compelling especially in quality stocks that have strong foreseeable earnings growth, and low gearing position. 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.