2 August 2024 Weekly Market Recap

1. This week, global financial markets exhibited negative performances. In developed markets, Japan experienced the largest decline, followed by Europe and the United States.
    
2. Across Asia, the overall performance was weak. Negative performances were led by Taiwan and South Korea, while Thailand posted marginal gains. In Malaysia, the FBMKLCI closed lower, attributed to the weak sentiment in the regional market.
    
3. In the bond market, the US 10-year Treasury yield fell sharply to the 3.7% range after the release of a weaker-than-expected jobs report raised concerns about a slowing economy, with investors now expecting the Federal Reserve to lower its funds rate by 100bps this year. (It's worth noting that bond prices move in the opposite direction of bond yields.)

1. In the US, the central bank held the fed funds rate steady as expected and noted that despite remaining elevated, inflation has eased and is further progressing toward the target. Markets are fully priced for a 25-basis point rate cut in September, with over 70 bps in total easing seen this year.²
    
2. In Europe, preliminary data shows the GDP expanded 0.6% year-on-year in the second quarter, the most in five quarters, following an upwardly revised 0.5% rise in Q1, and above forecasts of 0.5%.³
    
3. In China, the NBS Composite PMI Output Index fell to 50.2 in July from 50.5 in June, marking the lowest figure since December 2022. This drop reflects a waning confidence in a strong economic recovery due to ongoing deflation risks, weak demand, and property challenges. The Caixin General Manufacturing PMI also declined to 49.8 in July from 51.8 in June. Factory activity contracted for the third consecutive month, while the service sector saw its slowest expansion in eight months. Foreign direct investment into China plummeted by 29.1% year-on-year to CNY 498.91 billion during January-June 2024, representing a record decline for the first half of the year. ⁴
    
4. In Malaysia, the S&P Global Manufacturing PMI decreased to 49.7 in July from 49.9 in June, signalling the sector's second consecutive contraction. New orders eased for the first time in three months due to weak demand. Producer prices rose by 1.6% year-on-year in June, up from a three-month low of 1.4% in the previous month. This increase was attributed to price hikes in agriculture, forestry, fishing, and manufacturing.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 have a slight preference for equities over fixed income. The equities outlook in the second half will be supported by more confidence in bottom-up ideas. It is also notable that 2024 earnings forecasts have finally stabilized after persistent downgrades in the first half.

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, 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 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 approach to ride out volatilities arising from geopolitical tensions, inflationary issues, and concerns of economic slowdown.