6 September 2024 Weekly Market Recap

1. This week, global financial markets largely experienced negative returns, primarily due to concerns about a slowing labor market in the United States and a tech selloff. Among developed markets, the US saw the most significant decline, followed by Japan and Europe.
    
2. Across Asia, performance was mixed. Thailand led the region in gains, while South Korea and Taiwan faced the largest declines. In Malaysia, the FBMKLCI closed marginally negative amidst regional market volatility.
    
3. In the bond market, the US 10-year Treasury yield approached the 3.7% mark as markets absorbed August's nonfarm payrolls report, which indicated a softening labor market. This development has fuelled worries about an economic slowdown. (It's worth noting that bond prices move in the opposite direction of bond yields.)

1. In the United States, the ISM Manufacturing PMI edged higher to 47.2 in August from the November 2023 low of 46.8 in the previous month. This figure missed market expectation, reflecting the 21st monthly contraction in US factory activity in the last 22 periods. On the other hand, the ISM Services PMI increased to 51.5 in August from 51.4 in the previous month, surpassing market expectations. Additionally, the August jobs report, which showed 142K new jobs compared to the expected 161K, also contributed to market jitters.²
    
2. In Europe, producer prices increased by 0.8% month-over-month in July, marking the largest rise since December 2022, following an upwardly revised 0.6% increase in June and significantly surpassing market forecasts of 0.3%. The HCOB Composite PMI was slightly revised downward to 51 in August from a preliminary figure of 51.2, compared to 50.2 in July. This reading continued to indicate the strongest performance in private sector activity in three months, driven by a faster upturn in services, while manufacturing remained weak.³
    
3. In China, the Caixin General Manufacturing PMI rose to 50.4 in August from 49.8 in July, above market forecasts as new orders returned to growth, driving faster production expansion amid better underlying demand conditions. ⁴
    
4. In Malaysia, the central bank maintained its key interest rate unchanged at 3% for the eight consecutive meeting in September, matching market expectations, amid increasing optimism over the country's growth, inflation, and currency outlook. Policymakers noted that the monetary policy stance remains supportive of the economy and is consistent with the current assessment of inflation and growth prospects. The S&P Global Malaysia Manufacturing PMI stood at 49.7 in August, holding steady for the 2nd month although lingering at its lowest level in 3 months.⁵

Volatility resurfaced recently due to soft data and renewed pressure on mega-tech tech stocks, prompting a risk-off stance. Our base case remains for an economic soft landing in the US, with the Federal Reserve starting to ease policy at its September meeting. As markets continue to react to incoming data and headlines, we maintain the view that investors should remain invested and use the 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 ~10% in 2025 and a PE of 13x.

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, 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 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.