24 May 2024 Weekly Market Recap

1. Global financial markets were mostly negative this week. In developed markets, the largest decline were led by Europe and Japan, while the United States experienced marginal gains. 
2. Across Asia, performance was largely negative, with Hang Seng experiencing the largest decline, followed by China onshore market. In Malaysia, the FBMKLCI experienced marginal gains, contrary to the cautious sentiment in the regional market. 
3. In the bond market, US 10-year Treasury yields remained little change within the 4.40% range as investors re-evaluate future interest rate trajectories following better-than-expected economic data. (Bond prices move in the opposite direction of bond yields)

1. In the US, the latest FOMC minutes indicated worries over the lack of progress on inflation. The meeting followed a slew of readings that showed inflation was more stubborn than officials had expected to start 2024. The Fed targets a 2% inflation rate, and all of the indicators showed price increases running well ahead of that mark. Existing Home Sales in the United States, a measure of completed transactions, decreased 1.9% month-over-month, improved marginally from the 3.7% drop in March.²
2. In Europe, the HCOB Composite PMI rose to 52.3 in May, higher than the April’s 51.7. The reading showed the economic recovery in the Eurozone gained momentum, amid faster increases in business activity, new orders and employment while business confidence hit a 27-month high. On trade, the economic bloc posted a trade surplus of €24.1 billion in March, wider than €19.1 billion in the same month of the previous year.³
3. In China, the People's Bank of China kept key lending rates unchanged at the May fixing, matching market expectations. The 1-year loan prime rate (LPR), the benchmark for most corporate and household loans, was held unchanged at 3.45%. Meanwhile, the 5-year rate, a reference for property mortgages, was maintained at 3.95% following a significant reduction of 25 bps in February. These rates are currently at historically low level as part of Beijing's attempts to stimulate economic recover. Foreign direct investment (FDI) into China fell by 27.1% year-on-year in January to April, a record decline for the first four months of the year.⁴
4. In Malaysia, export advanced 9.1% year-on-year to MYR 114.72 billion in April, rebounding from a 0.9% fall in the previous month but coming less than market expectations of a 13.4% growth. Imports accelerated 15.6% year-on-year to MYR 107.0 billion in April, following a 12.5% increase in March but less than market forecasts. The annual inflation rate was at 1.8% in April, holding steady for the third straight month and matching market forecasts.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 now have a slight preference for equities over fixed income vs a balanced view in April. The equities outlook in the second half will be supported by a healthier China/HK market and 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.