Monthly Review April 2022
The best performing regional indices were S&P/ ASX 200 Index (+6.39%), Straits Times Index (+5.13%) and S&P BSE SENSEX Index (+4.13%) while the laggards were CSI 300 Index (-7.84%), Hang Seng China Ent Index (-6.21%) and Shanghai SE Composite (-6.07%). Regional currencies’ performance against the USD was weak. The best performing currencies were Singapore SGD (+0.00 %) and Indonesia Rupiah (-0.01 %).
For the month of March 2022, the MSCI Far East ex-Japan Index declined 4.00%, while the MSCI World Index gained 2.52%.
Major indices in the US were up after having fallen to a low during the month since the start of the year: Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq Composite gained 2.32%, 3.58% and 3.41% respectively. Risk assets rebounded on strong US labour market data as jobs report with nonfarm payrolls surpassing consensus forecast. The unemployment rate dropped to 3.8% while wage growth came in at 5.1% year-on-year. Investors came to the view that the US economy would not be as bad as feared. The diminished risk of fiscal crisis further boosted investor confidence as Congress passed a spending bill to fund the federal government through September.
The Stoxx Europe 600 Index gained 0.61% amidst concerns on Russia-Ukraine conflict and its impact on economic outlook given expectation of a prolonged period of high energy prices environment. Europe is a huge importer of oil and natural gas from Russia. Consumer confidence moved sharply lower in March, hurt by the surge in prices. However, labour markets are still improving and wages are rising. European institutions are discussing the launch of energy and defence fund and a new issuance of European bonds, which could be critical to cushioning sharply rising energy costs.
Hong Kong and H shares indices declined, with Hang Seng Index and Hang Seng China Enterprises Index dropping 3.15% and 6.21% respectively. China’s A shares index dropped 7.84%. The technology sector continued to come under pressure on regulatory concerns. The annual National People’s Congress announced economic growth target of 5.5% for 2022, the lowest in more than three decades and the lockdown on cities from rising Covid-19 cases further strained the growth outlook.
South Korea’s KOSPI Index gained 2.17% on bargain hunting. Korea’s industrial output declined for the second consecutive month in the wake of a glitch in imports of raw materials as well as the spread of the omicron variant of the coronavirus. Rates on mortgages extended by Korean banks rose to the highest level in about nine years in February in line with interest rate hikes by the central bank. Banks’ mortgage rates stood at 3.88% per year on average in February, up 0.03 percentage points from a month earlier, according to the data from the Bank of Korea. This marked the highest since March 2013, when the rate rose to as high as 3.97%.
Taiwan’s TWSE Index gained 0.23%. The index continued to be supported by the index heavy semiconductor stocks on good earnings visibility. The Central Bank of China (Taiwan) raised its benchmark interest rate by 25bps to 1.375%. The bank said the rate hike, the first such move in more than a decade, is helpful to contain inflation. The 25-bps rate increase marks the biggest one by the bank in the last 15 years.
Singapore’s STI gained 5.13%, driven by the index heavy financial sector. Singapore’s annual inflation rate accelerated to 4.3% in February from 4.0% in the previous two months and above market consensus of 4.2%. This was the highest reading since February 2013, with upward pressure largely coming from cost of food (2.3% vs 2.6% in January); housing (4.1% vs 4.1%); healthcare (1.9% vs 1.7%); transport (14.8% vs 12.7%); recreation & culture (0.8% vs 1.3%); and education (2% vs 2.2%). On a monthly basis, consumer prices increased 0.9%, the most in three months, after being flat in January.
Malaysia’s KLCI declined 1.30%. Manufacturing PMI declined marginally in March to 49.6 compared to 50.9 in February. Malaysia’s headline inflation was up 2.2% in February and it is expected to average between 2.2% and 3.2% in 2022, amid higher underlying inflation, according to Bank Negara Malaysia.
Thailand’s SET Index gained 0.60%. Thailand’s exports beat expectations by growing 16.2% in February, driven by higher international demand on the back of global economic recovery and proactive trade promotions. The Commerce Ministry reported that customs-cleared exports fetched USD23.48 billion in February, while imports rose by 16.8% to USD23.35 billion, resulting in a trade surplus of USD123.3 million. For the first two months of the year, exports had risen by 12.2% to USD44.74 billion, with imports surging 18.7% to USD47.14 billion, resulting in a trade deficit of USD2.4 billion.
The Jakarta Composite Index gained 2.66%. The International Monetary Fund (IMF) revised Indonesia’s growth outlook for 2022 to 5.4%, down by 0.2% compared to the January projection of 5.6%. IMF sees Indonesia’s economy strengthening further in 2022-2023, with growth of 6% in 2023. With expectation that the recent Omicron variant will be short lived, the government’s response is in favour of easing mobility restrictions. Economic outlook remains positive to support corporate earnings.
The Philippines PSE Index declined 1.47%. March manufacturing PMI improved to 53.2 from 52.8 in the previous month. The Philippines’ unemployment rate fell to 6.4% in January (Dec 2021: 6.6%, Jan 2021: 8.8%) as the size of the workforce shrank due to stricter mobility curbs in the capital region according to data from the Philippine Statistics Authority’s (PSA). This was the lowest share of the jobless to the total labor force in two years or since the 5.3% in January 2020 before the pandemic began.
Vietnam’s VN-Index edged up 0.14%. Vietnam’s industrial production rose by 8.5% YoY in March, after an upwardly revised 9.2% gain which was the steepest pace since last May. The latest figure was the fifth straight month of increases in industrial output, amid ongoing COVID-19 pandemic. For the first three months of the year, industrial output advanced 6.4% YoY.
We remain cautiously optimistic on risk assets on valuation, especially in Asia ex. Japan, coupled with positive impacts of expansionary and accommodating Chinese policies to support economic activities. However, the recent Russia-Ukraine conflict event has increased risk premium significantly. We are watchful of developments in the Russia-Ukraine conflict as well as policy directions in the major economies, in particular US and China, which will have major implications on the economies in general as well as on specific sectors. US policy responses will face headwinds going into 2022, in our opinion. Tapering and rate hike in 2022 will affect liquidity and increase cost of borrowings. In the near term, we have concerns about rising cost of production and its impact on business margins and earnings estimate for the first quarter which may result in downgrade in corporate earnings.
There remains headwind for risk assets, including rising bond yields and interest rate hikes to contain inflation and relatively high commodity prices, as well as the still relatively high valuations in the developed markets. The geo-political issues between China and US, and the new tension between the US and Russia over Ukraine will keep risk premium elevated at times and result in markets volatility.
We are adding to risk assets as valuation become more attractive. 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.
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