14 June 2024 Weekly Market Recap

1. This week, global financial markets experienced mix performances. In developed markets, the United States and Japan led the gains, while Europe faced negative returns.
2. Across Asia, performance was varied. Taiwan and South Korea's bourses saw an increase, while China on-shore and off-shore markets experienced declines. In Malaysia, the FBMKLCI had muted gains attributed to the cautious sentiment in the regional market.
3. In the bond market, the US 10-year Treasury yield fell to around 4.2% after recent data revealed a decline in inflation. (It's worth noting that bond prices move in the opposite direction of bond yields.) 

1. In the US, the annual inflation rate unexpectedly slowed to 3.3% in May, which was lower than April's 3.4%. This slowdown is attributed to lower prices in food, transportation, and shelter. Meanwhile, core inflation also slowed to 3.4% annually, marking the lowest rate since April 2021 and falling below the consensus of 3.5%. The Federal Reserve maintained the interest rate steady at 5.25%-5.50% for the 7th consecutive meeting in June, in line with forecasts. Policymakers reiterated that the interest rate is likely to remain higher until inflation shows sustainable movement towards 2%. Additionally, the dot plot revealed that policymakers anticipate only one rate cut this year and four reductions in 2025.²
2. In Europe, industrial production declined by 0.1% month-over-month in April, reversing the 0.5% growth seen in the previous month and falling below the expected increase of 0.2%. This deceleration was primarily due to a decline in intermediate goods output, while the production of capital goods advanced at a slower pace.³
3. In China, the annual inflation rate remained steady at 0.3% in May for the second consecutive month, falling short of market forecasts of 0.4%. This marks the fourth consecutive month of increases, indicating an ongoing recovery in domestic demand. Meanwhile, core consumer prices, which exclude food and energy costs, increased by 0.6% year-on-year, compared to a 0.7% rise in April.⁴
4. In Malaysia, retail sales slowed to 5.5% year-on-year in April, down from a nearly one-year high of 7.1% in the previous month. On the other hand, industrial production grew by 6.1% year-on-year in April, accelerating from a 2.4% rise in the previous month. Furthermore, the unemployment rate decelerated to 3.3% in April from 3.5% in the same month of the previous year.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. 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 concerns of economic slowdown.