Monthly Review June 2021
Dear Value Investors,
As for May, the best performing markets in the region in local currency terms were Ho Chi Minh Stock Index (+7.15%), S&P BSE Sensex Index (+6.47%) and Shanghai SE Composite (+4.89%), and the worst performing markets were the Taiwan TAEIX Index (-2.84%), Straits Times Index STI (-1.68%) and FTSE Bursa Malaysia KLCI (-1.13%). The US Dollar’s weakened in May led to most regional currencies overperforming, with the best performing currencies against the USD being the Great Britain Pound (+2.82%), India Rupees (+2.17%) and Europe Pound (+1.72%%) while the Malaysia Ringgit (-0.82%) was the worst performing currency.
For the month, the MSCI Far East ex-Japan Index gained 0.12%, lagging the MSCI World Index which was up 1.26%. The best performing regional indexes were India (+6.47%), Vietnam (+7.15%) and Shanghai (+4.89%), while the laggards were Malaysia (-1.13%), Taiwan (-2.84%) and the Singapore (-1.68%).
The Dow Jones Industrial Average Index (DJIA) gained 1.93%, and the S&P 500 index was up 0.55% while the Nasdaq Composite Index fell by 1.53%. The broader risk asset continued to gain strength on optimism over positive economic outlook. Investors rotated out of technology sector in favour of cyclical sector. The Purchasing Managers’ Indices (PMI) for both manufacturing and services beat expectations and hit record highs, while headline inflation rose 4.2% in April year on year.
The Stoxx Europe 600 Index was up 2.14%. The vaccination rates picked up, amid favourable economic data and assurances from the European Central Bank (ECB) of continued support. The Eurozone services PMI jumped, marking strong growth in the sector, while the manufacturing PMI softened. Like the US, the European majors experienced inflationary pressures but the ECB assured no changes to the asset purchasing program.
Hong Kong and China indexes gained with CSI-300 Index, Hang Seng Enterprise Index and Hang Seng Index rising 4.06%, 0.59% and 1.49% respectively. China’s economic recovery continued to show strength with latest composite PMI at 54.2 in May compare to 53.8 in April. The manufacturing index came in at 51 while non-manufacturing index was 55.2. The yuan’s rapid rise against the dollar towards the end of May was driven by speculation and is “overbought,” according to a Chinese official. People Bank of China (PBoC) says it has no plans to ease exchange rate controls. Managed system is ‘an institutional arrangement fit for China at present and in the foreseeable future’, PBoC deputy governor says.
South Korea’s KOSPI Index recorded a gain of 1.78%. The Organization for Economic Cooperation and Development (OECD) has further raised its growth outlook for South Korea this year by half a percentage point to 3.8% on the back of strong exports and expansionary fiscal policies, as well as a dip in new COVID-19 infections. It also pointed to improving private consumption and an increase in investment by the government. The government will be able to draw up a second extra budget this year, driven by a projected annual “surplus” of about 17 trillion won ($15.2 billion) in tax revenue.
The TWSE index declined 2.84%. The consumer confidence index declined in May to 74.9 from 77.3 in April, as concerns about outbreaks of the COVID-19 virus grew, reported the Central Research Institute of Taiwan. Taiwan government may offer another NT$420 billion ($15 billion) in loans to help small- and medium-sized firms hit by the COVID-19 pandemic. Taiwan’s central bank last year made NT$300 billion ($11 billion) available to help small- to medium-sized enterprises (SMEs) cope with the impact of COVID-19, which is now surging in parts of Taiwan after months of being well under control.
Singapore’s STI declined 1.68% as resurgent of COVID-19 cases hurt investors’ sentiment. Singapore latest PMI figure edged higher to 50.9 in April of 2021, from 50.8 in the previous month, pointing to the tenth consecutive month of expansions in factory activity and the highest level since December of 2018. Manufacturers registered faster growth in the sub-indexes of new orders, new exports, and employment, more than offsetting a steeper contraction in supplier deliveries and slower increases in factory output and inventory.
Malaysia’s KLCI declined 1.13%. Malaysia government unveiled RM40 billion packages to help people and companies through two-week nationwide lockdown that begins 1st June. The plan includes a RM5 billion fiscal injection, aimed at boosting the nation’s healthcare and to support businesses. Economists estimated that the new national lockdown could shave as much as 2ppt off economic growth in 2021. Malaysia’s Purchasing Managers’ Index eased to 51.3 in May from a record high of 53.9 in April. The reading signalled a further improvement in the health of the sector, and the first time back-to-back monthly improvements that have been reported since 2018. However, the impact of the latest tightening of restrictions was yet to feed through to official statistics, though the latest PMI data suggest that the sector stagnated during May.
Thailand’s SET index gained 0.66%. The latest Thailand Manufacturing PMI rose to 50.7 from 48.8 in the prior month. This was the first growth in the manufacturing sector since December 2020 and among the best reading during the past two years, boosted by the government’s ability to control the recent wave of local COVID-19 infections. Production and new business both increased for the first time this year, spurred by a boost to exports.
The Jakarta Composite Index declined 0.80%. Indonesia Manufacturing PMI rose to a fresh record high of 55.3 in May from 54.6 in April. This was the third straight month the index registering a new survey-record peak, amid an improvement in the local Covid-19 situation and acceleration in demand during the Lebaran holidays. Indonesia’s consumer confidence index also increased to a 13-month high of 101.5 in April from 93.4 in March, and flipping back into the positive territory for the first time since March 2020, amid the massive vaccination program. It was the strongest reading since March 2020, as the all of the six main sub-indices strengthened.
Philippines’s PSE index gained 4.04%. Philippines’ May 2021 manufacturing PMI improved to 49.9 from 49.0 in the previous month which boasted investors’ sentiment. However, the resurgence in local COVID-19 cases prompted tighter lockdown curbs and factory closures. Output fell steeply, with the rate of drop among the quickest in the survey to date
Vietnam’s VN-Index gained 7.15%. Vietnam Manufacturing PMI dropped to 53.1 in May from a near 3-year high of 54.7 in April. This was the lowest reading since February, amid the latest outbreak of Covid-19 infections in the country. Rates of expansion in output, new orders, and employment all softened, while backlogs of work accumulated to a near-record. On a positive note, foreign direct investment showed strength. In May alone, Hanoi gave the green light to 14 wholly foreign-owned projects and two foreign joint ventures, with combined registered capital of USD5.3 million. Meanwhile, foreign investors poured USD184 million into operational projects.
We remain cautiously optimistic on risk assets as earnings outlook is expected to be positive in near term supported by strong economic growth prospect across the global economy. USA policies responses are expected to be expansionary at least for 2021, in our opinion. The latest PMI figure from China suggests economic activities are still healthy. However, we think that the risk asset is trading at elevated level in near term.
Headwind for risk assets include rising bond yields and continued inflation concerns from loose monetary policies and high commodity prices. The geo-political issues between China and US will keep risk premium elevated at times and result in markets volatility.
We are tactically, taking profit on selected investment 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.
This advertisement 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.