11 August 2023 Weekly Market Recap

1.  The global financial markets put on a mixed performance throughout the week, where among the developed markets, the United States (US) and Europe closed lower, while Japan closed higher. 

2. In Asia, majority of the markets delivered negative returns over the week, with China onshore and offshore recording the largest declines. 

3. In Malaysia, the FBMKLCI returned marginally positive over the week, despite the weakness in regional sentiments and uncertainties surrounding the upcoming state elections.

4. In bond market, the price of the benchmark 10-year U.S. Treasury note closed marginally lower, driven by a mixed inflation report and expectations for higher levels of issuance by the Treasury Department. (Bond prices move in the opposite direction of bond yields)

1. In the US, the consumer price index (CPI) rose slightly to 3.2% from a year ago in July, slightly up from June’s 3.0% pace. Month on month, the consumer price index rose 0.2 per cent, matching the gain observed in June. Shelter accounted for more than 90% of the increase in the CPI.²

2. In Europe, the United Kingdom (UK) demonstrated a remarkable sequential growth of 0.5% in its gross domestic product (GDP) for June, surpassing the consensus forecast of a 0.2% expansion. Strong increases in manufacturing and construction were important drivers. Meanwhile, annual inflation in the euro area decreased to 5.3% in July from 5.5% in June, although it remains significantly above the European Central Bank's 2% target.³

3. In China, the latest inflation data revealed that consumer and producer prices fell in tandem for the first time since November 2020, underscoring the weak demand throughout the economy. Additionally, the trade data for July fell short of expectations, with exports posting a larger-than-expected decline of 14.5% compared to the same period last year, while imports contracted by 12.4%, nearly double the decrease observed in the previous month. In another development, Country Garden, one of China’s largest property developers, encountered liquidity challenges and failed to make interest payments on two dollar-denominated bonds.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, particularly in the technology sector, and believe that Asian equities and fixed income present more value in the short term.
 

1. On Fixed Income, we find bonds appealing as we perceive a higher likelihood that central bank hiking cycles will end soon, despite recent guidance from the Fed. 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.
    
2. On equities, we favour quality and dividend-paying stocks for their defensive qualities that can help withstand the uncertain macroeconomic and geopolitical conditions. We are positive on Asia and positioned in the areas of a) bottoming of the tech hardware cycle; b) long term growth headroom from low penetration rates, e.g., India; c) ASEAN continue to provide a combination of recovery plays and long-term structural themes; and d) China’s reopening, although we are judicious in which areas.
    
3. We also favour income-focused approach to ride out volatilities arising from geopolitical tensions, inflationary issues, and recessionary concerns.