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  /  Article   /  Monthly Review January 2021

Monthly Review January 2021

Dear Valued Investors,

In December 2020, the MSCI Far East ex-Japan Index gained 6.22%, while the MSCI World Index was up 4.14%.

The Dow Jones Industrial Average Index (DJIA) gained 3.27% over the month, while the S&P 500 index was up 3.71% and the Nasdaq Composite Index rose 5.65%. US stocks received a boost towards the end of the year as the rollout of the first batch of COVID-19 vaccines began in selected regions to frontline personnel and vulnerable groups. Trump persisted in his attempt to challenge the outcome of the November elections, while Biden formally announced his pick of ex-Federal Reserve Chairman Janet Yellen for Treasury Secretary. Bitcoin continued its meteoric rise in December, rising +47% from USD19,625 to USD29,001 month-on-month.

In the Eurozone, the Stoxx Europe 600 Index was up 2.48%. Europeans were given a Christmas surprise with the 11th hour announcement of a trade agreement between the UK and the EU that will maintain pre-Brexit trade ties, which includes no tariffs or quotas on trade. However, whether this generosity will carry over to inter bloc access for financial institutions – which are predominantly located in the global financial capital of London – is still up in the air.

China CSI 300 Index 5.06%, while the Hang Seng Index was up 3.38%. China’s economic rebound continued its streak, ending the year on a high note with the Manufacturing Purchasing Manager’s Index (PMI) recording 51.9, still signalling an expanding economy, although it was down 0.2 percentage points from November.  Non-manufacturing PMI recorded 55.7 in December. Most other economies remained in contractionary territory. The PBOC released a statement that they would take a more laissez-faire stance going forward, with the implication that market forces would be allowed to bring more discipline into the overleveraged financial sector. In other news, the Ant Financial saga appeared to close another chapter of its storied fall from grace with regulators demanding that it return to its roots as a payment provider.

The South Korean market soared 10.89% in December. The currency was up 6.13% against the dollar this year due to an influx of foreign capital. Indonesia and South Korea inked the Indonesia-South Korea Comprehensive Economic Partnership Agreement (IK-CEPA), which abolishes tariffs on certain key industries to promote bilateral trade on industries of strategic importance.

In Taiwan, the index gained 7.36% in December – undeterred by the USA adding the small island nation to a list of countries being monitored for currency manipulation, the country’s first designation since 2017. Taiwan’s current account surplus reached 10.9% of GDP over the four quarters through June 2020, benefitting from a booming tech sector world-wide that the prolonged pandemic helped to bring about. As widely expected by markets, the central bank left the policy rate unchanged at 1.125%, the lowest level in the country’s history.

Singapore’s STI gained 1.35% in December. The country’s non-oil domestic exports (NODX – a significant indicator of the export-driven economy) dropped 4.9% y.o.y. in November, extending a 3.1% y.o.y. decline in October. This was mainly due to a fall in sales of electronic and non-electronic products.

Malaysia’s KLCI was up 4.13%. The glove manufacturing counters continued their decline, seeing low double-digits fall in stock prices over the period. Malaysia’s unemployment rates remained reasonable at 4.7% given the circumstances (US: 6.7%). Government debt (including contingent liabilities) rose to RM1.257 tril as at end-September, or about 87.3% of GDP – federal debt alone was 60.7% of GDP as at end-September.

In Thailand, the SET index rose 2.91%. Tourism is a major contributor to the country’s economy which has been impacted significantly by the closure of Thai borders to international travel. Forecasts of international travel demand (a large % of GDP) is expected to revive significantly by the fourth quarter of 2021. Certain local banks reported forward-looking declining NPL expectations for SMEs, indicating that consumer sentiment is recovering.

The Jakarta Composite Index (‘JCI’) soared 6.53%. Bank Indonesia cut the benchmark rate by 25 basis points to a record low of 3.75%, as inflation remained subdued. The central bank expects inflation to remain below the 2-4% target this year. Economic stimulus programs such as the Housing Financing Liquidity Facility (FLPP), which provides long term funding for housing mortgages, saw further support from the government, increasing to IDR11 tril this year.

In the Philippines, the PSEi gained 5.13% in December. The country’s stock exchange (PSE) tightened rules on voluntary delisting, after a string of delistings this year triggered complaints from minority shareholders who were dissatisfied with the tendered offer price. Economists dashed hopes of a quick recovery from the pandemic in early 2021, opining that an L-shaped recovery was more likely than a V- or U-shaped recovery.

Vietnam’s VN-Index was up 10.05% m.o.m. The central bank (SBV) extended credit growth limits to commercial banks for the second time this year (currently capped at 30%). Leading banks also introduced a loan package for production and business sectors, and allowed preferential interest rates to SMEs in an effort to stimulate credit growth. Meanwhile, the US Treasury branded Vietnam as a currency manipulator alongside Switzerland.

Crude oil price (WTI) rose 7.01% to USD48.52 per barrel in December, while Brent crude climbed 8.85% to USD51.80 per barrel. Norway ended oil production cuts on the last day of the calendar year, while OPEC+ members engaged in diplomatic discussion to agree on output levels.

Relative to the depressing state of events through much of 2020, the year ended on a high note. Biden’s election as US President is expected to bring more level-headed policy with regard to economics and markets and US’ trade relationships, while Yellen’s appointment as Treasury Secretary is seen as likely to herald in greater cooperation between the government and the Fed on policy setting. Democrat control of both houses of Congress – and the White House – will enable much needed legislation to be pushed through, both in terms of economic recovery and pandemic control. The announcement of successful vaccines which are already being distributed in various countries is cause for a more optimistic outlook for 2021, notwithstanding that the number of new Covid-19 cases continues to remain high.

In other places outside the US, the mood is similarly upbeat. The potential risks of a hard Brexit have been mitigated, with the signing of a trade agreement between the UK and the Euro mainland that will maintain pre-Brexit trade ties. China is the first large economy to see a near complete economic rebound from the pandemic, raising hope for similar outcomes in other developed economies. Closer to home, Malaysia has seen consumer sentiment lift significantly, with pent-up demand driving auto sales, retail activity and domestic travel bookings close to pre-covid levels.

However, many market risks still remain. The pandemic has exacerbated already record-high levels of government debt to untenable proportions, with nearly all developed economies seeing federal debt-to-GDP levels exceeding 100% and total debt-to-GDP levels approaching Japan’s. This raises concerns about inflations, as well as the ability of governments to repay their debt from tax revenues, driving the narrative for negative interest rates, digital fiat, and a change in the monetary paradigm the likes of which have not been seen since the USA abandoned the gold standard.

We continue to hold fast to the time-tested principles of value investing, and seek to strike a balance between risk and reward. We see opportunities to profit from market volatilities, while at the same time prioritizing the preservation of capital. We remain steadfast in seeking low valuations, low leverage, high growth, good management and a strong track record in our investee companies – which we believe will serve us well. With great trepidation and hope, we look forward to navigating your capital through these uncharted waters.

OUTLOOK

Relative to the depressing state of events through much of 2020, the year ended on a high note. Biden’s election as US President is expected to bring more level-headed policy with regard to economics and markets and US’ trade relationships, while Yellen’s appointment as Treasury Secretary is seen as likely to herald in greater cooperation between the government and the Fed on policy setting. Democrat control of both houses of Congress – and the White House – will enable much needed legislation to be pushed through, both in terms of economic recovery and pandemic control. The announcement of successful vaccines which are already being distributed in various countries is cause for a more optimistic outlook for 2021, notwithstanding that the number of new Covid-19 cases continues to remain high.

In other places outside the US, the mood is similarly upbeat. The potential risks of a hard Brexit have been mitigated, with the signing of a trade agreement between the UK and the Euro mainland that will maintain pre-Brexit trade ties. China is the first large economy to see a near complete economic rebound from the pandemic, raising hope for similar outcomes in other developed economies. Closer to home, Malaysia has seen consumer sentiment lift significantly, with pent-up demand driving auto sales, retail activity and domestic travel bookings close to pre-covid levels.

However, many market risks still remain. The pandemic has exacerbated already record-high levels of government debt to untenable proportions, with nearly all developed economies seeing federal debt-to-GDP levels exceeding 100% and total debt-to-GDP levels approaching Japan’s. This raises concerns about inflations, as well as the ability of governments to repay their debt from tax revenues, driving the narrative for negative interest rates, digital fiat, and a change in the monetary paradigm the likes of which have not been seen since the USA abandoned the gold standard.

We continue to hold fast to the time-tested principles of value investing, and seek to strike a balance between risk and reward. We see opportunities to profit from market volatilities, while at the same time prioritizing the preservation of capital. We remain steadfast in seeking low valuations, low leverage, high growth, good management and a strong track record in our investee companies – which we believe will serve us well. With great trepidation and hope, we look forward to navigating your capital through these uncharted waters.

 

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