27 September 2024 Weekly Market Recap

1. This week, global financial markets experienced positive returns. Among developed markets, Japan recorded the most significant gains, followed by Europe and the United States.
    
2. Across Asia, overall performance was positive. China’s onshore and offshore markets led the region in gains, while Indonesia experienced marginal declines. In Malaysia, the FBMKLCI closed slightly negative despite a recovery of sentiment in regional market.
    
3. In the bond market, the US 10-year Treasury yield edged closer to the 3.7% range following the release of key inflation data that showed the rate of price increases is close to the Federal Reserve’s target. (It's worth noting that bond prices move in the opposite direction of bond yields.)

1. In the United States, the S&P Global Flash Composite PMI edged lower to 54.4 in September 2024 from 54.6 in August, beating market forecasts of 54.3. The reading showed business activity remained robust in US private sector, led by the services sector although it slowed slightly (55.4 vs 55.7), while the manufacturing contraction deepened (47 vs 47.9). Meanwhile, new Home Sales MoM decreased to -4.70 % in August from 10.60 % in July of 2024. Annual PCE inflation rate fell to 2.2% in August from 2.5% in the previous month, while the core rate edged up to 2.7% from 2.6%, matching forecasts.²
    
2. In Europe, the HCOB Flash Composite PMI fell for a fourth consecutive month to 48.9 in September 2024, the lowest since January, compared to 51 in August and lower than the forecast consensus. The downturn in manufacturing output extending to an 18th consecutive month (44.5 vs 45.8), while services remain in expansion although the momentum slightly decelerated compared to previous month (50.5 vs 52.9).³
    
3. In China, the PBOC lowered its one-year medium-term lending facility (MLF) rate by 30 bps to 2%. In addition, the central bank injected CNY 300 billion into the financial system. This policy move marked one of the PBoC's most extensive packages of economic stimulus measures announced during a rare briefing the previous day, underscoring Beijing's commitment to achieving its 5% GDP target for 2024. Other significant stimulus measures included a 50 bps cut in the reserve requirement ratio, a 20 bps reduction in the seven-day reverse repo rate, and a 20-25 bps cut in benchmark loan prime rates. Additionally, the PBoC is expected to lower existing mortgage rates by around 50 bps and reduce down-payment requirements for second homes to 15%. ⁴
    
4. In Malaysia, the annual inflation rate unexpectedly stood at 1.9% in August 2024, compared to market estimates of 2.0%, which had been consistent for the previous three months. This rate marked the lowest reading since April, with prices slowing in various sectors such as housing, furnishing, household maintenance, health, recreation, education, and restaurants.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 look favourable with earnings growth of approximately 10% in 2025 and valuation still attractive, trading below historical average.

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.