19 January 2024 Weekly Market Recap

1. The global financial markets concluded the week with majority experiencing negative returns. In developed markets, Japan and United States (US) witnessed the largest gains, while Europe experienced a drop. 
2. In Asia, market performance was also largely negative. China, both offshore and onshore, experienced the largest decline, with South Korea and Thailand following suit.  
3. In Malaysia, the FBMKLCI experienced negative performance as the selldown extended from last week. 
4. Turning to the bond market, the10-year U.S. Treasury note had a marginally negative return, with yields rising above the 4% range, as investors assessed the recent resilient economic data in the US. (Bond prices move in the opposite direction of bond yields)

1. In the US, December retail sales grew by 0.6%, higher than the 0.3% increase in November, indicating resilient consumer spending. Unemployment filing benefits fell by 16,000 to 187,000 in the week ending 18 January, the least since September 2022, and well below market expectations of 207,000. Expectations for rate cuts in 2024 fell sharply over the week in part due to comments by Federal Reserve Governor Christopher Waller highlighting the robust state of the economy. ²
2. In Europe, the trade balance recorded a surplus of EUR 20.3 billion in November, surpassing figures from the same month in the previous year. The strong figures are supported by a 0.9% increase in exports and a 0.6% decrease in imports. On monetary policy, the ECB’s policymakers reaffirmed their data dependent stance in the recent meeting, considering of the uncertainties in the economy and inflation.³
3. In China, the economy expanded 5.2% in 4th quarter of 2023, exceeding the 4.9% growth in the previous quarter. For the full year, the economy grew by 5.2%, exceeding the official target of around 5.0%. Additionally, December’s industrial production showed the highest increase in almost two years, while retail sales experienced the smallest growth in three months. The surveyed jobless edged up to 5.1% from 5% in the previous three months. Foreign direct investment (FDI) into China fell by 8% year-on-year to CNY 1.13 trillion, signalling weak confidence from foreign investors.⁴

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 a higher likelihood that central bank hiking cycle will end soon. 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 recessionary concerns.