Market Review September 2023
For the month of August 2023, markets were generally down, with the developed markets faring better than the markets in Far East ex-Japan. The MSCI Far East ex-Japan Index declined 7.50%, while the MSCI World Index had a smaller 2.55% fall. The Far East ex-Japan markets declined from the previous month’s strong gain on the back of weaker than expected economic activities in China, as well as down beat economic data in Korea. The ASEAN Index performed better, declining 3.97%. Markets that performed relatively better were Indonesia (0.32% in local term), Vietnam (+0.09%) and Thailand shares (+0.63%), while the laggards were Philippines shares (-6.31%), Hong Kong shares (-8.45%) and China H shares (-8.22%). Regional currencies were weak against the USD. The best performing currencies were Indonesia Rupiah (-0.98%) and Taiwan NT (-1.33%), while the laggards were Korean Won (-3.67%) and Philippines Peso (-3.01%).
Major US indices consolidated after a few months of strength. The market retreated on profit taking and downgrading of the US government’s credit rating by Fitch. However, the resilient economy activities data kept sentiment buoyant. Labour market data pointed to a cooling but still strong jobs market in July, with payroll job gains of 187,000, slightly below consensus expectations for 200,000. Unemployment ticked down to 3.5%, while average hourly earnings were slightly stronger than expected at 4.4% YoY. Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq Composite returned -2.36%, -1.77% and -2.17% respectively. The headline Consumer Price Index (CPI) increased slightly in July to 3.2% YoY due to higher food and energy prices, while core CPI decelerated slightly to 4.7% YoY from 4.8% YoY in June.
The Stoxx Europe 600 Index declined -2.79% following US indices correction. Eurostat’s flash GDP estimate showed that euro area GDP grew by 0.3% QoQ in Q2 2023. While this pace was relatively modest, euro area labour markets remain very tight, with the unemployment rate dropping to 6.4% in June, its lowest level on record. However, the economic outlook remains uncertain, as the August composite PMI fell to 47, its lowest level (ex-Covid) since 2012. Eurozone headline inflation defied expectations and remained flat in August at 5.3% YoY. Core inflation, however, did fall modestly from 5.5% YoY in July to 5.3% YoY in August.
Hong Kong and H shares indices declined on profit taking with increase in trading volatility. Hang Seng Index and Hang Seng China Enterprises Index declined -8.45% and -8.22% respectively on concerns over slowing economic activities. China’s manufacturing activity contracted for the fifth consecutive month in August. The official manufacturing purchasing managers’ index rose slightly to 49.7 last month, signaling contraction in manufacturing but still an improvement over the 49.3 reading in July. China’s A shares index also declined 7.71%, compared to the previous month’s gain. The weakness in the property sector continues to worry investors as Country Garden Holdings Company Ltd’s stock and bonds plunged, as scrutiny intensified over its operations and ability to meet debt payments. The ripple effect on domestic consumption due to negative wealth effect will further dampen the economy growth outlook.
South Korea’s KOSPI Index declined 6.48% reflecting risk aversion on risk assets. Bank of Korea froze its key rate for another month. South Korea’s factory output fell again in July, continuing its longest stretch of declines in decades as it struggles with exports amid a global slowdown. Industrial production dropped 8% YoY in July, resulting in a 10th consecutive month of decline, according to data released by Statistics Korea. That’s worse than the 6% decrease forecast by economists.
Taiwan’s TWSE Index declined -2.98%. Consumer confidence in Taiwan’s economy experienced a decline in August, reversing a three-month upward trend, according to a survey released by National Central University (NCU). The Consumer Confidence Index (CCI) dropped 0.88 points from the previous month to 67.51. On the positive note, Taiwan export orders totaled US$47.73bn in July, up 8.0% MoM, but down 12.0% YoY. The decline is much narrower than last month’s 24.9% contraction, and far better than consensus of 15.5% YoY decline.
Singapore’s STI declined -4.17%. Singapore Manufacturing PMI rose slightly to 49.8 in July from June’s 49.7, marking the fifth consecutive month of contraction but indicating stabilization in factory activity. Moderate declines were observed in new orders, new exports, factory output, and employment indices, while inventory reduction accelerated. Simultaneously, the electronics sector, comprising 42% of Singapore’s industrial output, improved to 49.3 (from June’s 49), ending 11 months of decline, due to rising demand for enhanced AI integration capacity. Import prices in Singapore continued falling for the seventh month, reaching -7.5% YoY in July, while export prices improved to -12.1% YoY, up from June’s -15.1%.
Malaysia’s KLCI declined -0.51%. The headline inflation in July eased to 2.0% , against 2.4% in June. Malaysia’s producer price index (PPI) indicated further moderation in overall inflationary pressure. The PPI has deflated for the sixth consecutive month in July 2023, declining by 2.3% YoY, while manufacturing input prices deflated by 2.1% YoY, the steepest in three-month.
Thailand’s SET Index increase +0.09%, which is a relatively better performance among regional markets on the back of positive political development. However, the S&P Global Thailand Manufacturing PMI dropped to 48.9 in August 2023 from July’s 50.7, signaling the first factory activity decline in 19 months. This was led by a notable drop in new orders. Concurrently, output growth hit a nearly 2-year low, while purchasing activity increased slower, reflecting concerns about order expansion.
Jakarta Composite Index increased +0.32%. Indonesia’s annual inflation rate increased to 3.27% in August 2023 from a 16-month low of 3.08% in the previous month. The inflation rate remained within the central bank’s target of 2-4% for a fourth consecutive month. Core inflation slowed to an 18-month low of 2.18% in August. Exports remained weak amid the slowing global economy. Indonesia export dropped 18.03% from a year earlier to USD 20.88 billion in July 2023, after having plunged 21.18% in June. For the first seven months of 2023, shipments dropped by 10.27% from the same period last year.
The Philippines PSE Index declined -6.31%. The central bank of the Philippines held its benchmark interest rate for the third straight meeting at 6.25% in August 2023, confirming market expectations. The country’s headline inflation slowed to a 16-month low of 4.7% in July, still outside but nearing policymakers’ target range of 2%-4%.
Vietnam’s VN-Index increased +0.09%. Vietnam’s central bank continued to embark on expansionary monetary policy to spur economic activities. The central bank will suspend some lending regulations to help the country’s ailing property market after Prime Minister Pham Minh Chinh ordered the regulator to help businesses obtain better access to loans. The State Bank eased three property lending clauses starting in September, making it easier for developers and home buyers to get loans.
The string of rate hikes since 2021 and their impact on economic growth, in particular how severe the global economic recession will be if any, will remain the focus of investors’ concern. In the near term, investors will refocus on upcoming third quarter US corporate earnings announcement. The resilient employment and consumption data have raised expectation of a soft landing for the US economy, although a recession can still not be ruled out. Geo-political developments will remain on investors’ radar screen. US economic data and interest rate trend and expectation on the Fed’s rate decisions will continue to have a major influence on investors’ investment decisions on risk assets. The easing of inflation rate in recent months has lifted investors’ sentiment, in particular in US risk assets. The US headline consumer price index (CPI) of 3.2% in July was in line with market expectation.
The market corrections in recent periods would present opportunities, in particular in Chinese equities on depressed valuation and which may offer potential upside on expansionary Chinese policies to support economic activities.
We remain watchful of geo-political developments as well as policy directions in the major economies, in particular US and China. US economic and inflation data and policy responses in terms of rate hikes in 2023 will affect market sentiments and liquidity, not just in the US but worldwide. The market seems to have factored in a peak in interest rates in 2023, though risk remains. In Asia, the focus is on the extent of China’s economic recovery following the end of its “zero Covid” policy. China’s economic data post-Covid have been weaker than expected. The Chinese property sector recovery remains weak, and any sign of stabilization will have positive catalyst for the economy and risk assets. The Chinese government has made known its intention to take counter-cyclical policy measures to maintain a healthy economic environment.
While we are cautiously optimistic, there remains headwind for risk assets, including high interest rate and slower economic activities in 2023, particularly in China, as well as the still relatively high valuations in the developed markets. The continuing geo-political tension in Europe and in East Asia can have major implications for businesses and economic activities, and will keep risk premium elevated at times and result in markets volatility. We will be watchful on these.
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 increased expectations of investors and 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.
This article is solely for information purposes. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument, investment product or service. The information contained herein does not have any regard to the specific investment objectives, financial situation or particular needs of any person. Investors may wish to seek advice from a financial advisor before making any investment decision. Past performance is not indicative of future results. An investment is subject to investment risks, including the possible loss of the principal amount invested.