5 January 2024 Weekly Market Recap

1. The global financial markets concluded the week with mostly negative performance. In developed markets, the United States (US) and Europe experienced the largest drop, followed by Japan. 
2. In Asia, market performance was mostly negative, with both China’s onshore and offshore leading the largest decline. On the other hand, the markets in the Philippines and Thailand chalked up positive gains.  
3. In Malaysia, the FBMKLCI ended the week on a positive note, fuelled by strong trading activities, particularly in the blue chips and financial segments. 
4. Turning to the bond market, the10-year U.S. Treasury note experienced negative return, with yields jumping above the 4% range, as investors weighed the better-than-expected jobs report. (Bond prices move in the opposite direction of bond yields)

1. In the US, the recent Federal Reserve minutes suggest the tightening cycle may have reached its peaked, with rate cuts expected by the end of 2024. The ISM Manufacturing PMI* showed a slight improvement to 47.4 in December compared to previous month, although it still suggests a contraction. Services PMI* unexpectedly fell to 50.6 in December, the lowest reading in seven months. Additionally, claims for unemployment benefits decreased to 202,000 over the week, signaling a positive labour trend. ²
2. In Europe, annual inflation rose to 2.9% in December, up from the 2.4% seen in previous month. Core inflation, excluding volatile items such as food and energy, cooled to 3.4%, lower than the previous month. The HCOB Manufacturing and Services PMI* both rose to 44.4 and 48.8, respectively in December, surpassing initial estimates but still indicating contraction.³
3. In China, the Caixin General Manufacturing and Services PMI* both inched up to 50.8 and 52.9, respectively in December, surpassing market forecasts. Despite the strong number, the figures contrasted with the official NBS data released on Sunday that showed manufacturing activity shrinking at a faster pace in December.⁴

Our current stance is neutral on both equity and fixed income, with a preference for income-focused funds. Our strategy emphasises quality, growth, and income in stocks and credits. We are exercising caution with USD assets and believe that Asian equities and fixed income present more value in the short term.

1. We find bonds appealing as we perceive a higher likelihood that central bank hiking cycle will end soon. 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. 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 recessionary concerns.