12 April 2024 Weekly Market Recap

1. Throughout the week, global financial markets presented a mixed bag of performances, with Japan showing positive gains in the developed market, while both US and Europe saw declines. 
2. Across Asia, performance was uneven, with Taiwan and Thailand emerging as leaders in gains, contrasting with notable downturns experiences in both onshore and offshore markets in China. Despite prevailing caution with the regional market, Malaysia’s FBM KLCI managed to achieve modest growth. 
3. US 10-year Treasury yields surpassed the 4.30% mark as investors re-evaluate future interest rate trajectories. The latest persistent inflation data suggests that fewer than two rate cuts are now anticipated.

1. In the US, the annual inflation rate rose for the second consecutive month to 3.5% in March, the highest since September 2023, attributed to increased prices in gasoline and transportation. Core inflation remained steady at 3.8%, excluding volatile food and energy prices. Meanwhile, producer prices saw a modest 0.2% month-over-month increase in March, the smallest rise in three months. ²
2. In Europe, the European Central Bank (ECB) opted to keep its interest rates unchanged for the fifth consecutive time during its April meeting, with the main refinancing rate holding steady at 4.5%, and the deposit facility rate at a record high of 4%. The ECB hinted at the possibility of policy adjustment should inflation demonstrate steady progress towards the 2% target. ³
3. In China, consumer prices inched up by 0.1% year-over-year in March, marking a notable slowdown from the previous month. This deceleration was attributed to the impact of the Lunar New Year festivities, particularly affecting non-food inflation, notably in education and transportation costs. Core consumer prices, excluding food and energy prices, also experienced a slowdown, rising by 0.6% year-over-year in March compared to the previous month’s 1.2% increase. Additionally, China’s trade surplus narrowed to USD 58.55 billion in March, with exports declining more than imports. ⁴
4. In Malaysia, industrial production expanded by 3.1% year-over-year in February, marking the second consecutive month of growth, albeit at a slightly slower pace. Retail sales surged to a five-month high of 5.8% year-over-year in February, while the unemployment rate decreased to 3.3%, maintaining its pre-pandemic level for the fourth consecutive month. ⁵

We advocate a balanced allocation in both equity and fixed income, with a preference for income-focused funds. Our strategy emphasises quality, growth, and income in stocks and credits. We are exercising caution with USD assets and believe that Asian equities and fixed income present more value in the short term.

1. We find bonds appealing as we perceive that the central bank’s hiking cycle may have reached its peak. We also see potential for capital gains in the event of weaker economic growth. Therefore, we maintain our preference for investment grade bonds with longer durations as our preferred investment choice. For Malaysia, the projected improvement to the budget deficit, provided in the Budget 2024, improved the outlook for domestic bonds.
    
2. On equities, we prefer quality and dividend-paying stocks for their defensive characteristics, which can provide resilience in the face of uncertain macroeconomic and geopolitical conditions. Our positive outlook is focused on Asia and includes strategic positions in various areas: a) the bottoming tech hardware cycle, b) long-term growth potential driven by low penetration rates (such as India), c) recovery plays and structural themes in ASEAN, d) selective sectors benefiting from China's reopening, and e) Malaysia's growing optimism due to political stability and potential gains from the New Energy Transition Roadmap, the New Industrial Master Plan 2030 and projected improvement to the budget deficit detailed in the Budget 2024.
    
3. We also favour income-focused approach to ride out volatilities arising from geopolitical tensions, inflationary issues, and concerns of economic slowdown.