Monthly Review September 2021
Dear Value Investors,
As for August, the best performing regional indexes were India (+9.44%), Philippines (+9.33%) and Hang Seng China Aff. CRP (+9.16%), while the laggards were Singapore (-3.53%), Hang Seng China Enterprises (-0.54%) and Hang Seng Index (-0.32%). Most currencies in the region strengthened against the USD. The best performing currencies were Thai baht (+2.10 %) and Indonesia Rupiah (+1.64 %).
For the month, the MSCI Far East ex-Japan Index gained 0.84%, lagging the MSCI World Index which was up 2.35%.
All major indexes in the US rose: Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq Composite gained 1.22%, 2.90% and 4.00% respectively. Risk assets continued to gain on positive economic data with August’s flash PMI at 61.1 and 55.1 for manufacturing and services, respectively. US consumer confidence remained strong amid growing labor market optimism. The July jobs report added 943,000 jobs and wages rise by 0.4% month over month. Federal Reserve (Fed) Chairman Jerome Powell’s Jackson Hole speech was well received by the markets. The Fed is content with the progress made on inflation, which it still believes will be transitory.
The Stoxx Europe 600 Index gained 1.98%. The Eurozone’s composite PMI declined to 59.5 in August from its 15-year peak level of 60.2 in July. The Eurozone’s annual rate of inflation accelerated from 2.2% to 2.7% in August surpassing the ECB price stability target of 2.0%. The higher than expected inflation will put pressure on the ECB in coming weeks. Risk assets in the Eurozone gained on sentiment.
Hong Kong and China indices saw decline, with CSI-300 Index, Hang Seng China Enterprises Index and Hang Seng Index declining 0.12%, 0.54% and 0.32% respectively. China’s economic activities weakened. The latest composite PMI for August came in at 48.9 compared to 52.4 in July. The manufacturing index came in at 50.1, while non-manufacturing index was 47.5. The slowdown in non-manufacturing index was due to resurgence in Covid-19 cases and Chinese authority’s increased focus on social stability which may have the effect of dampening corporates operating environment.
South Korea’s KOSPI Index was down 0.10%. South Korea became the first major Asian economy to raise interest rates, the first in almost three years. The quarter-percentage-point hike to 0.75% still left rates in an accommodative position that supports the economy. The government proposed a record 604.4 trillion won ($519 billion) budget for 2022, stressing the need for an expansionary fiscal policy to help the economy recover from the COVID-19 pandemic. The budget, represents an 8.3 percent hike from this year, less than the 8.9 percent increase for 2021 and 9.1 percent for 2020, according to the Ministry of Economy and Finance.
Taiwan’s TWSE index gained 1.41%. Taiwan’s economy is expected to grow by 5.88% in 2021, its fastest pace in 11 years. The previous forecast made in June by the Directorate General for Budget, Accounting and Statistics (DGBAS) had pegged Gross Domestic Product (GDP) expansion at 5.46%. Industrial production continued to rise for the 18th consecutive month, thanks to the strong global demand for both tech and old economy products. Manufacturing production, which made up 90% of the total industrial production in July, posted slower annual growth while increasing for the 18th month in a row. On a seasonally adjusted monthly basis, industrial production declined 1.65%, erasing the downwardly revised 2.26% increase in June.
Singapore’s STI declined 3.53%. Singapore latest PMI figure corrected marginally to 50.9 in August, from 51.0 in the previous month. Singapore’s economy expanded 14.7% YoY in 2Q21, compared with an advance estimate of a 14.2% growth and a final 1.5% gain in 1Q21. Manufacturing production grew by 16.3% YoY in July 2021, the 9th straight month of gain, as activities in the economy continued following an acceleration in COVID-19 vaccinations. On a monthly basis, manufacturing output fell by 2.6%, compared with consensus of a 0.3% drop and after a downwardly revised 2.6% drop in June.
Malaysia’s KLCI gained 7.14% on short covering and bargain hunting. Manufacturing PMI improved to 43.4 in August from 40.1 in July. The political situations stabilized somewhat with the appointment of a new Prime Minister. The severe Covid-19 situation continued to put pressure on corporate earnings and domestic economic activities.
Thailand’s SET index gained 7.68%. Thailand’s Manufacturing PMI declined marginally to 48.3 in August from 48.7 in the prior month. Bank of Thailand had revised down its 2021 GDP forecast again to +0.7% from a June revision of +1.8%. The downgrade was premised on lockdown’s hit on private consumption and tourist arrival estimates (from 700k to 150k). Meanwhile, the central bank noted that the depreciating Baht was due to local factors and will step in to curb excessive volatility in order to protect businesses.
The Jakarta Composite Index gained 1.32%. Indonesia’s Manufacturing PMI increased to 43.7 in August from 40.1 in July. Bank Indonesia (BI) maintained its policy rate at 3.50% with the view to maintain exchange rate and financial system stability amid projected low inflation and efforts to revive economic growth. BI maintained its national GDP growth projection of 3.5-4.3% given relaxed social distancing restrictions, accelerated vaccination rollout, continued policy stimuli, improving exports, and the reopening of priority sectors and MSME (small and medium enterprises) supports.
The Philippines PSE index gained 9.33%, recovering from the sharp correct in the previous month. August manufacturing PMI dropped to 46.4 from 50.4 in the previous month. The Philippines Central Bank (BSP) maintained its policy interest rate at 2.00%. Despite the +11.8% YoY rebound in GDP in 2Q 2021, the economy contracted on QoQ seasonally-adjusted basis (-1.3%), underscoring a patchy recovery due to new wave of Covid-19 cases which had led to a new round of lockdowns. The pace of vaccinations was slow.
Vietnam’s VN-Index gained 1.64% on bargain hunting after sharp correction in the previous month. Manufacturing PMI corrected to 40.2 in August from 45.1 in July. Vietnam’s industrial production declined by 7.4% YoY in August, after a revised 0.3% drop a month earlier. This was the second straight month of fall in industrial output, amid ongoing COVID-19 infections, with output decreasing for both manufacturing (-9.2% vs 0.7% in July) and mining (-2.4% vs -10.9%).
We remain cautiously optimistics on risk assets on positive earnings in near term supported by improving economic growth prospect across the global economy. USA policies responses are expected to remain expansionary at least for 2021, in our opinion. In Asia, the resurgence of Covid-19 cases across some countries will impact on domestic economic activities, mitigated by rising consumer confidence as governments stepped up vaccination drive. However, in China, changes in government policies and tightening of regulatory supervision to address social economic concerns have impacted stocks in targeted sectors, creating uncertainty in the buisness and market outlook.
Headwind for risk assets include rising bond yields and continuing inflation concerns from loose monetary policies and relatively high commodity prices. The geo-political issues between China and US will keep risk premium elevated at times and result in markets volatility.
We continue to take profit on selected investment on high valuation and increasing our cash level. We continue to apply our strategy of focusing on identifying fundamentally healthy companies with low valuations, low leverage, high growth, robust management and a strong track record, and adherence to our investment philosophy of “Never Fully Invest at All Times” which has served us well over the years. We are also in the midst of developing a robust ESG investment framework to meet the increasingly socially-aware demands of investors, as well as other stakeholders.
We thank you once again for your continued faith in us, and hope to remain good stewards in our endeavour to protect and grow your capital.