15 September Weekly Market Recap

1. The global financial markets closed the week on a mixed note. In the developed markets, Japan and Europe experienced the largest gain, while United State (US) experience a slight negative return. 

2. Across Asia, the majority of markets delivered mixed returns throughout the week. South Korea recorded the highest gain, while China's onshore market experienced the largest decline. 

3. The FBMKLCI in Malaysia recorded a slight positive return for the week, despite the continuous cautious sentiment within the regional economy.

4. In the bond market, the price of the benchmark 10-year U.S. Treasury note closed slightly lower, influenced by positive economic signals and the anticipation of potential shift in the direction of upcoming rate hikes. (Bond prices move in the opposite direction of bond yields)

1. In the US, the consumer price index (CPI) for August rose 3.7% compared to the previous year, surpassing July's 3.2% increase due to higher gasoline prices. However, the core CPI moderated to 4.3% from the previous year's 4.7%, aligned with initial expectations.²

2. In Europe, the European Central Bank (ECB) raised interest rates for the 10th consecutive time, bringing the rate to 4%. The committee signalled the possibility of the ECB's monetary tightening campaign nearing its end. Latest macro data saw July's industrial output declined 2.2% from a year ago driven by sharp declines in the output of durable consumer and capital goods.³

3. In China, recent data indicates signs of economic stability. Industrial production and retail sales in August surpassed expectations, while unemployment unexpectedly decreased compared to July. However, fixed asset investment remains subdued and fell short of forecasts. On the inflation front, there was a rebound as it returned to growth after experiencing contraction in July. In terms of monetary policy, the People's Bank of China (PBOC) reduced its reserve ratio requirement by 25 basis points for the second time this year, aiming to inject more liquidity into the financial system.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 US Federal Reserve (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 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 and the New Industrial Master Plan 2030.
    
3. We also favour income-focused approach to ride out volatilities arising from geopolitical tensions, inflationary issues, and recessionary concerns.