27 October Weekly Market Recap

1. The global financial markets closed the week on a weak note, with the majority of the markets in the red. Among the developed markets, the United State (US) and Japan experienced the largest decline, followed by Europe.

2. Across Asia, the markets delivered mixed returns throughout the week. China's onshore and offshore market experienced the largest gains, while Korea and India experienced the largest decline.

3. In Malaysia, the FBMKLCI in Malaysia ended the week on a subdued note, driven by ongoing cautious sentiment within the regional economy. 

4. In the bond market, the price of the 10-year U.S. Treasury note closed on a slightly positive note, with yields stabilising around 4.8% after briefly reaching 5% earlier. The shift was driven by lower issuance and strong subscription. (Bond prices move in the opposite direction of bond yields)

1. In the US, the market is gearing up for quarterly earnings results. Among those that reported, Amazon’s earnings have garnered the most positive reaction. US economy grew at an annualised pace of 4.9% in the third quarter, led by strong consumer spending. Other data also paints a favourable picture, as home sales remained resilience and S&P Global’s flash U.S. Composite Purchasing Managers’ Index (PMI) saw a slight uptick from September. The core personal consumption expenditure (PCE) shows mixed results, with slight monthly upticks but overall moderation.²

2. In Europe, the European Central Bank maintained a 4.0% key deposit rate, emphasising the need to maintain higher rate to bring inflation closer to its medium-term target of 2%. Business activities continue to show sign of deterioration, with the HCOB Eurozone Composite Purchasing Managers’ Index (PMI), which includes both the manufacturing and services sectors, falling to 46.5 from 47.2 in September.³

3. In China, September’s industry profit surged by 11.9% from the previous year, indicating potential economic stabilisation. On policy front, the Chinese government announced the issuance of RMB 1 trillion in additional sovereign debt for disaster relief and construction. They also approved a higher fiscal deficit ratio of about 3.8% of gross domestic product for 2023, exceeding the 3% limit set in March. On property development, Country Garden Holdings defaulted on its offshore debt payments for the first time after failing to meet interest payments within the 30-day grace period.⁴

Our current stance is neutral on 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 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.