Monthly Review November 2020
Dear Valued Investors,
In October 2020, the MSCI Far East ex-Japan Index was up by 2.94%, while the MSCI World Index slid 3.14%.
The Dow Jones Industrial Average Index (DJIA) slid 4.61% over the month, while the S&P 500 index declined 2.77% and the Nasdaq Composite Index dropped 2.29%. Wall Street lost ground as resurgence of COVID-19 infections and uncertainty about the second fiscal relief bill dimmed the outlook for the US economic recovery. The country set daily records for COVID-19 infections with the number of hospitalised Americans with COVID-19 jumped to a two- month high in October. President Trump and members of his family, and a number of White House staffers were also tested positive for the virus. The President went into quarantine and was treated at the White House and a military hospital, and was pronounced clear of the virus days later. The US Dollar index gained 0.16% in October.
In the Eurozone, the Stoxx Europe 600 Index was down 5.19%. European stocks closed lower as the investment sentiment continued to be affected by the rapid spread of COVID-19 across the continent. New record rise in daily COVID-19 cases were seen in France while the UK was set to extend its highest category alert to more cities and German Chancellor has warned that Germany was on the verge of losing control of the virus. .
China CSI 300 Index gained 2.35%, while the Hang Seng Index was up 2.76%. The outperformance of China equities can be attributed to the positive contrasting Covid-19 situation in China, as well as the strength of internet giants such as Tencent and Alibaba driven by consumption recovery. Alibaba’s 33%-owned Ant Financial was heading was a dual listing in Hong Kong and Shanghai in an IPO that would value the company at over US$300 billion. In a surprise development, that listing was halted on 3 November pending clarifications on the company’s regulatory compliance in China. China’s economic recovery was further confirmed by the encouraging September retail sales (+3.3% y.o.y) and solid October PMI of 51.4 points.
The South Korean market dipped 2.61% in October. Market weakness was mainly due to uncertainties arising from the government’s plan to impose capital gains tax which was first proposed in June this year. The proposed capital gains tax would apply to individual retail investors, and there was much public disagreement and debates as to how and the threshold of individual retail investors’ shareholdings that would apply.
In Taiwan, the index gained 0.25%. The market was volatile in the month, rallying strongly in the first 2 weeks, driven by strong quarterly earnings, especially from the Tech sector, but easing off towards the end of the month due to uncertainties ahead of US election.
Singapore’s STI declined 1.73% in October. Singapore announced its 3Q GDP expanded 7.9% q.o.q, but contracted -7% y.o.y after shrinking -13.6% y.o.y in the second quarter. The construction industries slumped 44.7% y.o.y and Service industries contracted 8%. Singapore’s central bank signalled that it would keep monetary policy unchanged for longer to complement a massive fiscal stimulus supporting the economy’s recovery.
Malaysia’s KLCI fell 2.52%, mainly due to profit taking activities amid political instability and extension of lockdown due to rising new COVID-19 cases. Selangor, Kuala Lumpur and Putrajaya have been placed under a conditional movement control order (CMCO) beginning from 14th October in order to curb the pandemic.
In Thailand, the SET index tumbled 3.40%. The country witnessed a fresh wave of street protests by pro-democracy activists seeking the resignation of the Prime Minister and changes to the Constitution regarding the powers of the monarchy. The withdrawal of a state of emergency in Bangkok that the government had declared earlier and the convening of special session of parliament have failed to placate the protesters.
The Jakarta Composite Index (‘JCI’) climbed 5.30%. The market rallied after the nation passed a bill simplifying labor and investment rules, making it easier for companies to secure permits while exempting some dividend taxes. On top of that, Indonesia is considering a plan to reopen its international borders to regular travellers after the largest economy in South East Asia shut its borders to international visitors since April this year.
In the Philippines, the PSEi soared 7.84% in October. The Philippines market outperformed its peers in ASEAN amid positive sentiment from the easing COVID-19 situation in the country as daily new cases began to decrease with active cases averaging about 46,000 this month vs 58,000 in the previous month.
Vietnam’s VN-Index gained 2.24% m.o.m. The market continued its upward trend, supported by the central bank’s rate cuts that came into effect on 1st October and positive Q3 economic results, lifting expectation for improvements in Q3 company results.
Crude oil price (WTI) fell 11.01% to USD35.79 per barrel in October, while Brent crude tumbled 8.52% to USD37.46 per barrel. Oil price continued to fall amidst clouded outlook on demand due to resurgence of COVID-19 infections in the world and swelling US crude stockpiles. Crude palm oil (CPO) prices gained 14.55% to RM3,252/MT in October.
All eyes are on who will be occupying the White House for the next four years. At the point of writing, the result of the US Presidential election is still unknown although the race is closer than polls had indicated. While vote counting should be winding up in matter of days, the prospect of the declaration of who is the winner being challenged, both in and outside the US Courts, will cause concerns and uncertainties. Globally, we have yet to shake off the scourge of Covid-19 pandemic. However, countries are determined to press on with progressive reopening of businesses and their borders to international travel, we are of the view that the worst in terms of the economic impact of the pandemic is likely to be over and countries are on the road of recovery, though instances of resurgence continue to appear. Despite the COVID-19 pandemic which has trampled the economy, US stock indices, in particular NASDAQ, have recovered very well since the market bottom in March 2020, driven by unprecedented fiscal and monetary injections. In terms of valuation, the US market is now the highest over the last 16 years. We remain cautious in the near term. The market can expect bouts of volatilities.
The resulting market volatilities may provide opportunities to increase exposure in value stocks that are sold down well below their intrinsic value. Also, despite the significant market recovery as shown by the market indices, there are still stocks with good fundamentals that are trading at depressed prices. Hence, we will be watchful for valuations that have become compelling, especially for quality stocks that have strong foreseeable earnings growth with low gearing. At the same time, as we never fully invest at all times, we may seek to trim our equity exposure on stocks which have rallied beyond their fundamentals.
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