26 May 2023 Weekly Market Recap

1. The global financial markets recorded a flattish performance over the week. Developed markets in particular the United States (US) and Europe closed with negative returns, while Japan recorded positive gains.

2. In Asia, the markets experienced a mixed performance over the week, with China onshore and offshore markets experiencing losses, while Korea and Thailand led the gains. 

3. In Malaysia, market performance was weak over the week, primarily due to broader market uncertainties and concerns about a possible US government debt default.

4. In the bond market, the yield on the benchmark 10-year U.S. Treasury note increased slightly over the week, possibly in response to indications of a resilient consumer market and persistent inflationary pressures. (Bond prices move in the opposite direction of bond yields)

1. Debt ceiling negotiations resumed in the US after President Biden's return from Japan, but little progress was made, causing market decline. Meanwhile, the recent core personal consumption expenditures (PCE) price index - a key inflation metric favoured by the Federal Reserve (Fed)- rose to 4.7% year-over-year (Y-o-Y), indicating the tightening measures implemented so far do not seem to have added sufficient pressure.²

2. n Europe, a survey by S&P Global indicates business output grew for the fifth consecutive month in May, although the pace slowed due to weaker manufacturing. Meanwhile, European Central Bank (ECB) policymakers reiterated that interest rates must rise and remain high to control medium-term inflation.³

3. In China, there were no major indicators during the week. However, the country's slowing post-pandemic recovery has raised concerns about the economic outlook. Additionally, geopolitical risks affected risk appetite when Beijing announced a ban on Chinese companies buying products from Micron Technology, citing security risks. The ban would apply to domestic telecom firms, state-owned banks, and other companies behind China's information infrastructure.⁴

      Market narratives have been constantly changing as investors evaluate the latest economic developments. Despite persistent volatility, we believe that patience among investors could potentially pay off in the long run. To ride through the global uncertainties, investors are recommended to consider high-quality income focus investment products. Our broad strategy remains focused on selectivity, prioritising the characteristics of quality, growth, and income.

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 favour quality and dividend-paying stocks for their defensive qualities that can help withstand the uncertain macroeconomic and geopolitical conditions. We are positive on Asia as sector earnings are poised to be rerated supported by China’s rapid reopening.

3. We also favour income-focused approach to ride out volatilities arising from geopolitical tensions, inflationary issues, and recessionary concerns.