Monthly Review May 2021
Dear Value Investors,
As for April, the best performing markets in the region in local currency terms were Taiwan’s TAIEX Index (+6.91%), Ho Chi Minh Stock Index (+4.02%) and S&P/ASX 200 Index (+3.46%), and the worst performing markets were the S&P BSE Sensex Index (-1.47%), Hang Seng China Ent Index (-1.34%) and Phillipines Index (-1.12%). The US Dollar’s strength in April led to most regional currencies underperforming, with the best performing currencies against the USD being the Taiwan Dollar (+2.37%), Malaysia Ringgit (+1.37%) and Japanese yen (+1.28%%) while the India Rupees(-1.23%) was the worst performing currency.
For the month, the MSCI Far East ex-Japan Index gained 2.83%, lagging the MSCI World Index which was up 4.52%. The best performing markets were Taiwan (+6.91%), Vietnam (+4.02%) and Korea (+2.82%), while the laggards were India (-1.47%), HK China Ent (-1.34%) and the Philippines (-1.12%).
The Dow Jones Industrial Average Index (DJIA) gained 2.71%, and the S&P 500 index was up 5.24% while the Nasdaq Composite Index registered 5.40% gain. The release of strong economic data and corporate earnings announcement kept the equity market buoyant.
The Stoxx Europe 600 Index was up 1.81%. Private sector activity strengthened, with the Eurozone’s services sector returning to growth for the first time in eight months and manufacturing PMI hitting a new record high. The acceleration of the pace of vaccinations also delivered optimism despite the extension of lockdowns in some regions.
Both the CSI-300 Index and Hang Seng Index gained 1.49%, and 1.22% respectively, while Hang Seng China Enterprises Index fell -1.34%. China authorities took swift action against Alibaba for monopolistic practices. State Administration of Market Regulation fined Alibaba USD $2.78 billion for its anti-competitive practices. The Chinese authorities are reported to the reviewing the practices in other large tech companies. The Caixin Manufacturing PMI of 51.9 and official Manufacturing PMI of 51.1 for the month suggest still healthy economic activities.
South Korea’s KOSPI Index recorded a gain of 2.82%. The Korean economy grew 1.8% y.o.y in the first quarter of 2021 rebounding to its pre-Covid 19 level. The Gross Domestic Product (GDP) rose to 470.8 trillion won during this period. Private consumption rose 1.1% as export growth slowed to 1.9% from 5.4%% during the 4Q20.
The TWSE index gained 6.91%. The Taiwan economy grew 8.16% y.o.y in the first quarter of 2021 driven by strong export growth of 24.58% y.o.y. The consumption demand remained mild as employment in the service sector was weak due to limited tourism activities.
Singapore’s STI gained 1.67%, driven by the banking sector on strong quarterly earnings announcement. Singapore’s economy unexpectedly advanced 0.2% y.o.y in first quarter of 2021, beating market consensus of a 0.2% contraction and after a 2.4% decline in Q4, advanced data showed. This was the first expansion in four quarters, as the economy gradually recovered from the COVID-19 disruption.
Malaysia’s KLCI gained 1.79%. Malaysia’s Purchasing Managers’ Index rose to 53.9 in April from 49.9 in March, marking the strongest expansion recorded since the survey began in July 2012. New order volumes also returned to expansion territory in April with solid pace as manufacturers noted stronger client confidence, notably for new products.
Thailand’s SET index was down 0.26%. Business Confidence in Thailand increased to 50.10 points in March from 45.60 points in February of 2021. Consumer prices in Thailand unexpectedly edged down 0.08% y.o.y in March 2021, compared with market estimates of a 0.1% gain and after a 1.17% fall a month earlier. This was the 13th straight month of deflation but the weakest pace in the sequence, amid government relief measures to contain utility prices.
The Jakarta Composite Index gained 0.17%, amidst recovery in the trade figure and domestic consumption confidence. Indonesia’s exports surged in March due to higher commodity prices and rebounding global demand. Merchandise exports beat forecast with an annual jump of 30.47% to USD18.35 bil on rising shipments of oil, natural gas, palm oil, steel and coal. The consumer confidence index rose to 93.4 in March, from 85.8 in February and 84.9 in January. The improving figure is attributed to the smooth national vaccination program.
In the Philippines, the PSEi fell by 1.12%. The Phiippines economic activities remain weak as shown in the latest economic data. The trade deficit increased to USD 2.29 bil in February 2021 from USD 1.97 bil in the same month a year earlier. This was the smallest trade gap in three months, as exports fell by 2.3% y.o.y to USD 5.31 bil, while imports rose 2.7% to USD 7.60 bil. Manufacturing production plunged 46.5% y.o.y in February 2021, after revised 16.7% fall in January.
Vietnam’s VN-Index gained 4.02%. The IHS Markit Vietnam Manufacturing PMI increased to 53.6 in March 2021 from 51.6 a month earlier. This was the fourth straight month of expansion in the manufacturing sector and the strongest pace since December 2018. Output growth was at a 20-month high, while marked expansion in new orders and export sales led to stronger rises in employment and buying activity.
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. However, the resurgent of Covid-19 cases across the globe may tamper economy growth outlook. The comforting factor is that vaccination drive continue to be on track. US policies responses are expected to be expansionary at least for 2021, in our opinion. China economy growth remains healthy despite tightening measures to reign in structural imbalances. The Manufacturing Caixin PMI figure for April of 51.9 pointed to strong economic activities.
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.
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