Monthly Review August 2021
Dear Value Investors,
As for July, the best performing regional indexes were Indonesia (+1.14%), Singapore (+1.17%) and India (+0.20%), while the laggards were Hang Seng China Ent Index (-13.41%), Hang Seng China Affiliate (-10.19%) and Hang Seng Index (-9.94%). Most currencies in the region weakened against the USD, with the exception of Indonesian Rupiah which gained 0.64%. The worst performing currencies were Thai baht (-2.76 %) and Philippine Peso (-2.27 %).
For the month, the MSCI Far East ex-Japan Index declined 8.85%, lagging the MSCI World Index which was up 1.72%.
All major indexes in the US rose: Dow Jones Industrial Average (DJIA), S&P 500 and Nasdaq Composite gained 1.25%, 2.27% and 1.16% respectively. Risk assets continued to gain on positive second quarter results announcement and bullish corporates’ guidance. US consumer confidence remained strong amid growing labor market optimism in a reopening economy. However, a resurgence in Delta variance Covid-19 cases dampened investors’ sentiment and increased indexes trading volatility.
The Stoxx Europe 600 Index gained 1.97%. The Eurozone’s composite PMI rose from 59.5 to 60.6 in July driven by service sector activity. Europe’s economy expanded by 2.00% in the second quarter, reversing a 0.3% contraction in the previous quarter. Monetary policies remained accommodative. The ECB also revised its price stability target, increasing the inflation target to 2.0%. The move was viewed as dovish, giving the ECB more legroom before having to make a move on the policy front. The Eurozone’s annual rate of inflation accelerated from 1.9% to 2.2% in July. Risk assets resumed positive momentum
Hong Kong and China indexes saw substantial decline, with CSI-300 Index, Hang Seng Enterprise Index and Hang Seng Index declining 7.90%, 13.41% and 9.94% respectively. China’s economic activities weakened. The latest composite PMI for July came in at 52.4 compared to 52.9 in June. The manufacturing index came in at 50.4, while non-manufacturing index was 53.3. The announcement of policy and regulatory constraints to the operating environment of the education, property, technology and healthcare sectors in China affected investors’ sentiment on Chinese equities.
South Korea’s KOSPI Index was down 2.86%. Korea posted a higher-than-expected inflation figure with consumer prices rising 2.6% from a year earlier, accelerating from a 2.4% pace in the prior month and matching the fastest pace of gains this year. Higher transportation, food and utility prices were among the main drivers of increases in July. Export shipments surged 29.6% on an annual basis to a new high, owing to strong exports of memory chips and automobiles. Exports of chips soared 39.6% y.o.y to $11 billion in the month on higher demand from data centers, while shipments of automobiles surged 26.4% to $4.1 billion.
Taiwan’s TWSE index down by 2.86%. Taiwan’s economy grew faster than expected in the second quarter driven by strong export demand, however offset by the impact of island-wide Covid-19 restrictions. Gross domestic product grew 7.47% y.o.y in the second quarter, well above the median estimate of 6.65% of economists. However, investors’ sentiment was affected by generally profit taking stance in near term.
Singapore’s STI gained 1.17% as banking sector share price held up relatively better. Singapore latest PMI figure improved marginally to 51 in July, from 50.8 in the previous month. Manufacturing production surged 27.5% in June, beating market forecasts of 26.8%. This was the eleventh straight month of growth in manufacturing output and the steepest pace since November 2010. Output growth accelerated: electronics (26.2% vs 23.6% in May), chemicals (30.6% vs 16.1%), and biomedical manufacturing (42.5% vs 36.5%). Investors’ confidence was boosted by the economy’s resilience.
Malaysia’s KLCI declined 2.48%. Corporate earnings came under pressure as the high number of Covid-19 cases could trigger further curb on manufacturing activities. The political uncertainty continued to be a concern following the withdrawal of support by UMNO to Perikatan Nasional government. Malaysia’s Purchasing Managers’ Index remained low at 40.1 in July from 39.9 in June.
Thailand’s SET index declined 4.15%. The Thailand Manufacturing PMI declined to 48.7 in July from 49.5 in the prior month. However, concerns over the government’s ability to control the new wave of Covid-19 infections dampened investors’ risk appetite. Domestic demand deteriorated further due to the Delta Variant, which had triggered stricter containment measures.
The Jakarta Composite Index gained 1.41%. Indonesia Manufacturing PMI corrected to 40.1 in July from 53.5 in June. The number of Covid-19 cases and deaths remained high and is getting worse with the Delta variant. This has led the government to impose another round of strict movement order, which could further impact the economy. Despite the constraints, the market gained on bargain hunting especially in the new economy sector.
The Philippines PSE index declined 9.15%. July manufacturing PMI dropped to 50.4 from 50.8 in the previous month. Metro Manila imposed community quarantine from 23-31 July, after the Department of Health confirmed local transmission of the more infectious Delta variant. Indoor dine-in services were scaled down to 20% capacity while other services including non-contact sports were scaled down to 30% capacity, all with strict restrictions. The Index corrected on relatively thin liquidity.
Vietnam’s VN-Index declined 6.99%. Manufacturing PMI improved to 45.1 in July from 44.1 in June. Industrial production rose by 2.2% y.o.y in July, slowing from a downwardly revised 4.9% gain a month earlier. This was the weakest pace of expansion in industrial output since February, amid the latest wave of Covid-19 infections. Investors took profit on elevated valuation as Vietnam index is the best performing regional market in 2021 year to date.
We remain cautiously optimistics on risk assets as earnings outlook is expected to be healthy in near term supported by positive economic growth prospect across the global economy. US policies responses are expected to be remain expansionary at least for 2021, in our opinion. One should not dismiss the likelihood of market choppiness, however. While significant progress has been made in some countries in reducing the number of Covid-19 cases through stepped up pace of vaccinations, resurgence is seen in some parts of Asia, impacting on the domestic economic activities in these countries. The pandemic situation will continue to be a focus of attention, quite apart from the domestic issues that may exist in each market, such as the political uncertainty in Malaysia. In China, while the latest PMI figures suggest that economic activities are still healthy, policy and regulatory constraints imposed by the Chinese authority on specific sectors have had major impacts on the Chinese and Hong Kong markets.
In addition, risk assets would still expect headwinds, including rising bond yields and continued inflation concerns from loose monetary policies and relatively high commodity prices. The geo-political issues between China and US will also keep risk premium elevated at times and result in market volatility.
We continue to take profit on selected investments on high valuation and increasing our cash level. We continue to apply the 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 endeavor to protect and grow your capital.
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