11 October 2024 Weekly Market Recap

1. This week, global financial markets experienced mixed returns. Among developed markets, Japan recorded the most significant gains, followed by Europe and the United States.
    
2. Across Asia, overall performance was mix. Thailand led the region in gains, while China offshore experienced the largest declines. In Malaysia, the FBMKLCI closed with marginal decline, driven by the cautious sentiment in regional market.
    
3. In the bond market, the US 10-year Treasury yield edged closer to the 4% range following the release of inflation data that came in cooler than expected. (It's worth noting that bond prices move in the opposite direction of bond yields.)

1. In the United States, the annual inflation rate slowed for a sixth consecutive month to 2.4% in September 2024, down from 2.5% in August. Meanwhile, annual core inflation rate unexpectedly edged up to 3.3%, compared to 3.2% in the previous two months. Producer prices were unchanged in September from August 2024, below the previous month's 0.2% uptick and lower than forecasts of a 0.1% rise. Despite the inflation data, Fed officials remain divided on whether to continue cutting rates, with some favouring a pause. The trade balance in the US narrowed to $70.4 billion in August 2024, down from $78.9 billion in July. Exports increased by 2% while imports dropped by 0.9%.²
    
2. In Europe, retail sales experienced a modest increase from the previous month in August 2024, following a steady reading in July, aligning with market forecasts. Sales saw a resurgence in automotive fuel at specialized stores (compared to a decline in July) and in non-food products. Additionally, retail volumes showed an uptick for food, drink, and tobacco products.³
    
3. In China, the PBOC announced a new funding scheme, a swap facility worth CNY 500 billion, allowing eligible financial institutions to use assets as collateral to secure liquidity, as stated in a released statement. This initiative, named the Securities, Funds, and Insurance Companies Swap Facility (SFISF), is part of the central bank's efforts to develop a new structural monetary policy tool to support the stock market. The facility enables securities, fund, and insurance companies to obtain liquid assets for stock purchases by leveraging their holdings of bonds, ETFs, and CSI 300 Index constituent stocks as guarantees. The facility's size may be expanded based on market conditions. ⁴
    
4. In Malaysia, the unemployment rate inched down to 3.2% in August 2024 from 3.4% in the same month of the previous year, marking the lowest level since January 2020. Industrial production increased by 4.1% year-on-year in August 2024, slower than a 5.3% growth in the previous. Retail sales increased by 5.9% year-on-year in August 2024, down from a 6.4% gain in the previous month.⁵

The markets are approaching the final quarter, with the Fed recently initiating a rate-cutting cycle while reassuring investors that the US economy appears headed for a soft landing. Meanwhile, upcoming US elections and ongoing geopolitical conflict may introduce seasonal volatility. As markets continue to react to incoming data and headlines, we maintain the view that investors should remain invested and use any near-term selloff to build a diversified portfolio focusing on quality. We have a slight preference for equities over fixed income. Fixed income has outperformed equities since mid-June. Asian equities show promise, particularly with China no longer exerting a negative influence. Earnings growth for the broader Asian region excluding Japan is anticipated to reach 15% in 2025 according to our projections.

1. We find bonds appealing with the potential for capital gains as the rate-cutting cycle has begun. 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, as provided in the Budget 2024, has 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 with high dividends in China, 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,SEZ, and projected improvement to the budget deficit detailed in the Budget 2024.
    
3. We also favour diversification approach to ride out volatilities arising from geopolitical tensions, central bank rate cuts, and concerns of economic slowdown.