18 October 2024 Weekly Market Recap

1. This week, global financial markets experienced mixed returns. Among developed markets, the United States witnessed the most significant gains, while Japan and Europe closed in the red.
    
2. Across Asia, overall performance was mix. Indonesia and China onshore led the region in gains, while China offshore experienced the largest declines. In Malaysia, the FBMKLCI closed with marginal gains, 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 as investors continued to assess the outlook for Federal Reserve monetary policy. (It's worth noting that bond prices move in the opposite direction of bond yields.)

1. In the United States, the Q3 earnings season kicked off with 6% of the S&P 500 companies reporting actual results. Recent data indicated 79% of S&P 500 companies have reported a positive EPS surprise, and 60% of S&P 500 companies have reported a positive revenue. Meanwhile, export prices fell by 0.7 percent month-over-month in September 2024, exceeding market expectations and lower than the 0.9% decrease in August.²
    
2. In Europe, Industrial production rose in August 2024, marking the largest increase since February 2023 and recovering from a decline in July. Output rebounded for energy, capital goods, and durable consumer goods, while production fell more moderately for intermediate goods and continued to rise for non-durable consumer goods.³
    
3. In China, trade surplus widened to USD 81.71 billion in September 2024 from USD 75.5 billion in the same period a year earlier. Sales rose 2.4% yoy, below forecasts and slowing from an 8.7% gain in August. Meanwhile, imports rose 0.3%, slowing from a 0.5% growth in August, due to fragile domestic demand. Data on Friday showed that China' economy grew more than expected in the 3rd quarter, but at the slowest pace since the first quarter of 2023. The country also reported better-than-expected retail sales, industrial production and fixed asset investments in September, while new home prices fell the most since 2015. ⁴
    
4. In Malaysia, the government recently tabled the Budget for 2025 totalling RM421 billion, reflecting a 6.9% increase from the previous year's budget of RM393.8 billion. On economic data, the trade surplus narrowed in September 2024 compared to the same month last year, although it exceeded market estimates. Year-on-year, exports fell slightly to a five-month low, primarily due to lower sales in manufacturing, mining, and other sectors, while agricultural sales saw an increase. Imports rose significantly, driven by higher purchases of various goods.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.