12 July 2024 Weekly Market Recap

1. This week, global financial markets experienced positive performances. In developed markets, Europe led the gains, followed by United States and Japan.
2. Across Asia, the overall performance was largely positive, with Taiwan leading the gains, followed by the offshore and onshore market of China. In Malaysia, the FBMKLCI achieved positive gains, thanks to the positive sentiment in the regional market.
3. In the bond market, the US 10-year Treasury yield fell to the 4.1% range as fresh data showed both headline and core inflation rates fell more than expected to multi-year lows in June, prompting a higher bet on a Fed rate cut in September. (It's worth noting that bond prices move in the opposite direction of bond yields.) 

1. In the US, Federal Reserve officials at their June meeting indicated that inflation is moving in the right direction but not quickly enough for them to lower interest rates. The annual inflation rate fell for a third straight month to 3% in June, compared to 3.3% in the previous month and below the forecasts of 3.1%. Energy costs rose at a slower pace while utility gas service accelerated. Meanwhile, core inflations, which excludes volatile items such as food and energy, fell further to an over three-year low of 3.3%, easing from 3.4% in the prior month and below market forecasts of 3.4%.²
2. In Europe, it was a quiet week with no significant economic data releases. The stock market experienced volatility as investors in the region weighed political uncertainty in France following the recent election result. The left-wing New Popular Front (NFP) secured the largest number of seats but failed to achieve an absolute majority.³
3. In China, annual inflation rate edged down to 0.2% in June from 0.3% in the previous two months, falling short of market estimates. This marks the fifth straight month of muted figure since March, indicating the economic recovery remains fragile. Food prices were the main dragging factor compared to non-food inflation. Producer price fell by 0.8% yoy in June, matching market forecasts and easing from May's figure of a 1.4% decline.
4. In Malaysia, the unemployment rate fell to 3.3% in May from 3.5% in the corresponding month of the previous year, holding steady for the seventh consecutive month. BNM held its overnight policy rate steady at 3% for the seventh consecutive meeting in June, aligning with market expectations. Retail sale grew by 8.7% year-on-year in May, accelerating from a 5.5% rise in the previous month.  Meanwhile, Industrial production grew 2.4% year-on-year, easing from a 6.1% growth in the previous month.⁵

As markets continue to react to incoming data and headlines, we maintain the view that investors should ensure their portfolios are well diversified and focus on quality. We believe China/HK has bottomed as policy towards the residential property market has turned to one of clear support. While the quantum and scope is arguably insufficient, the change in direction is more important at this stage. We now have a slight preference for equities over fixed income. The equities outlook in the second half will be supported by a moderation in the trend of earnings downgrades in Asia. 

1. We find bonds appealing with the potential for capital gains as we perceive that the global rate-cutting cycle remain on track, despite the shift in timing and magnitude. 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 diversification and income-focused approach to ride out volatilities arising from geopolitical tensions, inflationary issues, and concerns of economic slowdown.