Monthly Review October 2021
As for September, the best performing regional indexes were Sensex Index (+2.73%), Jakarta Composite Index (+2.22%), and Philippine SE Index (+1.42%), while the laggards were Hang Seng Index (-5.04%), Hang Seng China Ent Index (-4.98%) and Kospi Index (-4.08%). Most currencies in the region weakened against the USD. The best performing currencies were Chinese RMB (+0.25%) and Vietnamese Dong (+0.10 %). The worst performing currency was Thai Baht which depreciated 4.09% against the USD.
For the month of September, the MSCI Far East ex-Japan Index declined 5.10%, lagging the MSCI World Index which corrected 4.29%.
All major indexes in the US dropped: Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq Composite declined 4.29%, 4.76% and 5.31% respectively. Risk assets retraced on profit taking and concerns over quantitative easing tapering which may take place as early as November. The Fed also released its projections for interest rates over the next few years, and the expectation was for US interest rates to rise to 1.75% by the end of 2024. The pace of rate increases was faster than the market had been pricing in, resulting in a rise in Treasury yields in the days following the Fed’s September meeting.
The Stoxx Europe 600 Index dropped 3.41%. The European Central Bank (ECB) announced a reduction in the pace of its asset purchases, but in contrast to the Fed, was keen to stress that this was not the beginning of a process of tapering purchases. As the Fed and BoE set out on a path towards higher interest rates, the ECB looks likely to be left behind.
Hong Kong and China indices performances were mixed, with A-shares CSI-300 Index gaining 1.26% while Hang Seng China Enterprises Index and Hang Seng Index declining 4.98% and 5.04% respectively. China’s economic activities recovered. The latest composite PMI for September came in at 51.7 compared to 48.9 in August. Concern about the property company, Evergrande’s credit crunch and expectations about its failure to meet debt obligations hurt foreign investors’ appetite on Chinese risk asset and sentiment. The Chinese government had stepped in to provide confidence with the injection of liquidity into the market. The People’s Bank of China pumped in 110 billion yuan ($17billion) of cash with seven- and 14-day reverse repurchase agreements. That was the largest addition through open-market operations since late January
South Korea’s KOSPI Index was down 4.08%. South Korea’s industrial output fell last month amid the continued resurgence of COVID-19, statistical office data showed. The seasonally-adjusted production in all industries, which exclude the agriculture, forestry and fishery sector, shrank 0.2 percent in August from a month earlier.
Taiwan’s TWSE index declined 3.18%. Taiwan’s central bank decided to leave its key interest rates unchanged for the sixth consecutive quarter, at the conclusion of its quarterly policymaking meeting. The central bank retained the discount rate at 1.125%, the lowest in Taiwan’s history
Singapore’s STI eased 1.04% as it consolidated amid weaker economic activities. The Singapore manufacturing PMI edged down to 50.8 in September of 2021 from 50.9 in August as local manufacturers continued to be concerned about supply chain disruptions. Manufacturers reported slower expansion of factory output, new orders, inventory, imports, supplier deliveries, and order backlogs.
Malaysia’s KLCI declined 3.97% on general risk aversion. Manufacturing PMI improved to 48.1 in September from 43.4 in August. The re-opening of the economy helped to revive consumer confidence and domestic economic activities.
Thailand’s SET index declined 2.02%. The Bank of Thailand (BoT) kept its policy rate unchanged at 0.5%, in line with expectations. The decision was unanimous, unlike the last meeting when two (out of six) policymakers voted for a 25bps rate cut. The Committee reiterated that financial measures would be more effective than a further cut in the policy rate. Headline inflation in August contracted 0.02% year-on-year, the first drop in five months, after the decline of fresh food prices and the government’s launch of stimulus measures to ease cost of living during the pandemic. Thai Baht has been under pressure as travel restrictions have impacted receipts from tourism, a key pillar of the Thai economy.
The Jakarta Composite Index gained 2.22%. Indonesia’s Manufacturing PMI increased to 52.2 in September from 43.7 in August. The World Bank in its October report predicts Indonesia’s 2021 economic growth to be 3.7%, lower by 0.7% than the World Bank’s prediction in April of 4.4%. This is due to the increase in daily Covid-19 cases reported at the beginning of 3Q21, which caused the government to impose more mobility restrictions.
The Philippines PSE index gained 1.42%, on profit taking after the sharp rise in the previous month. September manufacturing PMI gained to a six-month high of 50.9 from 46.4 in the previous month amid relaxation of Covid related restrictions. Employment rate fell at a smaller rate. The country’s unemployment rate in August 2021 was estimated at 8.1%, higher than July’s 6.9%.
Vietnam’s VN-Index gained 0.80%. GDP shrank by 6.17% YoY in the third quarter of 2021, the most on record, after a downwardly revised 6.57% growth in the previous period. The latest reading reflected the country’s tough policies to control the spread of the Covid virus, with activities falling in both industry and construction (-5.02%) and service sector (-9.28%). Considering the first three quarters of the year, the economy expanded by 1.42% from a year earlier. Full-year growth may come in at 3.5%-4%, according to planning and investment ministry estimates, significantly lower than the government’s initial target of about 6.5%.
We remain cautiously optimistic on risk assets on positive earnings in near term supported by improving economic growth prospect across the global economy. USA policy responses are expected to remain expansionary at least for 2021, in our opinion. The FED tapering, expected to start as early as November, may post headwinds for risk assets. In Asia, continued heightened level of Covid-19 cases across some countries will constrain domestic economic activities and GDP growth, but governments are stepping up vaccination drive with the view of hastening the progressive relaxation of Covid imposed restrictions. 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 business and market outlook.
While the prospect of progressive relaxation of social and economic activities will be positive for the economy, there are headwinds for risk assets, including high equity valuations, 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 maintain relative high 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.